UNIVERSIDAD COMPLUTENSE DE MADRID
FACULTAD DE DERECHO
Departamento de Derecho Internacional Público y Derecho Internacional
Privado
TESIS DOCTORAL
Public purpose in international law: rethinking regulatory sovereignity
in the global
(Interés público en el derecho internacional : reflexionando sobre
la regulación de la soberanía en la globalización)
MEMORIA PARA OPTAR AL GRADO DE DOCTOR
PRESENTADA POR
Pedro J. Martínez-Fraga
Director
José Carlos Fernández Rozas
Madrid, 2015
© Pedro J. Martínez-Fraga, 2014
UNIVERS
U
SIDAD CO
OMPLUTE
ENSE DE
E MADRID
D
FACULT
F
AD DE DERECHO
D
O
DEP
PARTAME
ENTO DE
E DERECH
HO INTE
ERNACIO
ONAL
PÚBLIICO Y DE
E DERECH
HO INTE
ERNACIO
ONAL PRIIVADO
P
PUBLIC
C PURP
POSE IIN INTE
ERNAT
TIONAL
L LAW
W:
RE
ETHINK
KING REGUL
R
LATOR
RY SOV
VEREIG
GNITY
Y IN
THE
E GLOB
BAL
(INTER
RÉS PÚBL
LICO EN EL DERE
ECHO INT
TERNACIIONAL:
RE
EFLEXION
NANDO SOBRE
S
L
LA REGULACIÓN DE LA S
SOBERAN
NÍA
EN LA G
GLOBALIZ
ZACIÓN))
Tesis docctoral quee presenta
PED
DRO J. M
MARTIN
NEZ-FRA
AGA
Dirigidda por el Prof.
P
Dr.
José Carloos Fernández Rozass
Cated
drático de D
Derecho internacional privado
Universidad
U
Compluten
nse de Madrrid
Madrid, D
Diciembree de 2013
2
SÍNTESIS
La doctrina del interés público puede ayudar a justificar restricciones, incluyendo
la expropiación o nacionalización de inversiones extranjeras. Sin embargo, la
propia configuración de la doctrina proporciona a los Estados una discreción
ilimitada equivalente a una licencia para ejercitar la doctrina en detrimento de sus
obligaciones de proteger a las inversiones extranjeras.
El estándar subjetivo y la falta de contenido de la doctrina, en tanto derecho
internacional convencional como consuetudinario, además de fomentar el abuso
de algunos Estados contra los inversores, ha conllevado a concluir que la doctrina
debe de ser ignorada en virtud a sus vulnerabilidades para servir por si misma a la
aplicación de parte de los Estados.
En tal sentido, uno de los propósitos es enfatizar, aun cuando ello parezca
implícito, que sólo la compensación, el debido proceso y el trato no
discriminatorio realmente importan en situaciones de expropiación,
nacionalización, o de toma de propiedad por parte de los Estados.
A pesar de esta falta de definición, la doctrina es utilizada indiscriminadamente.
En lo que respecta a derechos humanos la doctrina desempeña un rol importante,
pero aun se encuentra carente de definición. Por ejemplo, las tres convenciones
de derechos humanos aquí analizadas (la Convención Europea, la Convención
Interamericana, y la Carta Africana) se aprovechan de la doctrina con la finalidad
de elaborar cualificaciones aplicables a varios, pero no todos, los derechos
humanos enunciados (tal como el derecho de propiedad). Conciencia sobre el
interés público, sea en el contexto de convenciones de derechos humanos,
acuerdos de comercio regionales, tratados bilaterales de protección de inversiones
(“BIT”), o convenciones de derecho comercial, es necesaria si la doctrina espera
ser considerada como un talismán para justificar la intervención del Estado,
proporcionándoles a ellos con prerrogativas para desconocer el derecho de otros.
En tal sentido, nosotros proponemos once proposiciones para modificar la
doctrina que ciertamente no tienen la pretensión de agotar el estudio de la
doctrina, pero se configuran como centrales para la rehabilitación concienzuda de
la doctrina.
Primero, el interés público no puede ser desarrollado como una proposición auto
evidente, debe de ser construido y entendido de acuerdo a un razonamiento
lógico.
Segundo, no todo aquello que tenga un imprimátur público se encuentra dentro
del ámbito de la doctrina.
EAST\64724221.3
3
Tercero, la percepción subjetiva, los orígenes, o la justificación de un acto no lo
hace legal o viable de acuerdo a la doctrina. El acto por sí mismo debe responder
a objetivos de interés público.
Cuarto, la globalización comanda a que los Estados se comprometan y que
conjuntamente identifiquen preocupaciones dentro del marco de un paradigma
que no tolere resultados de “suma cero”. El “test de efectos” encontrado en las
decisiones y normas de NAFTA deben conllevar a que el test sea aplicado en el
contexto de una doctrina de interés público moderada que pueda conllevar a un
resultado razonable y proporcionado.
Quinto, un esfuerzo concertado por la comunidad internacional es necesario para
forjar una nueva doctrina que sea utilizada como base normativa para justificar
incumplimientos con obligaciones vinculantes que subyacen sobre los Estados.
Sexto, una jerarquía de intereses públicos, todos dentro del ámbito de una doctrina
única, necesita ser identificada. Asuntos que afectan la aplicación de principios
de jus cogens, o que conciernen al derecho a la vida, deben de tener preminencia.
Sétimo, el interés público no puede ser confundido con la acción del Estado con la
finalidad de perpetuar al régimen de turno o con la “obligación histórica” de
diseminación ideológica. Aquí, el “test de utilidad” puede servir como un
estándar relevante.
Octavo, armonizar el interés público en normas de protección de inversiones
extranjeras (“FIPS”) y en BITs, de manera que la cantidad y calidad de
obligaciones de protección al inversor vinculantes a los Estados pueda conllevar
al cumplimiento y no a la frustración de las expectativas entre el Estado de origen
y el Estado receptor de la inversión, es neurálgico para la rehabilitación de la
doctrina con la finalidad de evitar arbitrariedades, falta de transparencia, así como
irregularidades y corrupción.
Noveno, una solución parcialmente práctica puede ser la inmediata
implementación a través de la incorporación de una definición de interés público
en los instrumentos internacionales.
Décimo, los Estados que aplican el interés público en cumplimiento del ejercicio
de la soberanía regulatoria deben tener la carga de la prueba mediante un estándar
similar a lo “claro y convincente”, para demostrar los objetivos fundacionales y
comparables que subyacen en la aplicación de la doctrina.
Undécimo, debe haber un reconocimiento de que las ONGs y los legisladores
nacionales representan vehículos pragmáticos para transformar y definir una
nueva doctrina de interés público que pueda servir a los intereses de la totalidad
de la comunidad de naciones consonante con las demandas de la globalización
económica.
EAST\64724221.3
4
El desarrollo e implementación de éstas once proposiciones es intimidante. Sin
embargo, algún confort puede ser encontrado en entender que el conocimiento del
problema en sí y por sí mismo puede servir como un factor mitigador.
EAST\64724221.3
5
ABSTRACT
The doctrine of public purpose may help to justify restrictions, including the
expropriation or nationalization of foreign investment. However, the self-judging
configuration of the doctrine provides States with unbridled discretion tantamount
to a license to exercise it to the detriment of its obligations to protect foreign
investment.
The subjective standard and the lack of content of the doctrine, in both
conventional and customary international law, in addition to fostering abuse of
some States against investors, have led to conclude that it may be ignored because
of the doctrine’s vulnerabilities to self-serving application on the part of States.
Therefore, one of the purposes is to emphasize, even though they may seem
implicit, that only compensation, due process, and non-discriminatory treatment
actually matter in instances of expropriation, nationalization, or the taking of
property on the part of States.
Notwithstanding this lack of definition, the doctrine is used indiscriminately. In
human rights, the doctrine serves an important role, but it is still undefined. For
instance, the three human rights conventions here analyzed (the European
Convention, the Inter-American Convention, and the African Charter), avail
themselves of the doctrine in order to craft qualifications applicable to many, but
not all, human rights enunciated (such as the right to property). Consciousness of
public purpose, be it in the context of human rights conventions, regional trade
agreements, BITs, or commercial law conventions, is necessary if the doctrine is
to be relied on as a talisman for exceptions to State intervention providing them
with the right to disavow the rights of others.
In that order, we proposed eleven propositions to modify the doctrine that
certainly have no pretense of exhausting the subject, but appear to be central to
the meaningful rehabilitation of the doctrine.
First, public purpose cannot be construed as a self-evident proposition, it should
be construed and understood subject to discursive reasoning.
Second, not everything that has a public imprimatur falls within the ambit of the
doctrine.
Third, the subjective perception, origins, or justification of an act does not render
it legal or viable according to the doctrine. The act itself must respond to public
purposes’ objectives.
Fourth, globalization commands that States compromise and jointly address
concerns within the framework of a paradigm that does not tolerate “zero-sum
EAST\64724221.3
6
game” results. The “effects test,” found in the NAFTA “decisional law” must
yield to a test to be applied in the context of a tempered public purpose doctrine
that may lead to a reasonable and proportionality driven result.
Fifth, a concerted effort by the international community is needed to fashion a
new doctrine when used as a normative foundation for the disavowance of
binding obligations on States.
Sixth, a hierarchy of public purposes, all falling within the ambit of a single
doctrine, needs to be identified. Matters affecting the application of principles of
jus cogens, or that concern human life, must be accorded preeminence.
Seventh, public purpose cannot be confused with State action in furtherance of
regime perpetuation or the “historical obligation” of ideological dissemination.
Here the “futility test” can serve as an important standard.
Eighth, harmonizing public purpose in FIPS and BITs so that the quantum and
quality of investor protection obligations binding on States can lead to the
fulfillment and not the frustration of expectations between home and Host States
is central to the doctrine’s rehabilitation, in order to avoid arbitrariness, lack of
transparency, as well as irregularities and corruption.
Ninth, one practical partial solution that may be immediately implemented is
through the incorporation of a definition of public purpose in international
instruments.
Tenth, States applying public purpose in furtherance of the exercise of regulatory
sovereignty should bear the burden by a standard akin to “clear and convincing”
of demonstrating the objective foundations and commensurable underpinnings of
the doctrine’s application.
Eleventh, there must be a recognition that NGOs and national policymaking
represent pragmatic vehicles for transforming, and defining a new public purpose
doctrine that may serve the interests of the entire community of nations consonant
with the demands of economic globalization.
The development and implementation of these eleven propositions is daunting.
Some comfort, nonetheless, perhaps can be found in realizing that consciousness
of the problem in and of itself may serve as a mitigating factor.
EAST\64724221.3
TABLE OF CONTENTS
Page
INTRODUCTION ............................................................................................................. 1
Chapter 1
Public Purpose in NAFTA ....................................................................... 14
A.
Public Purpose in the Context of Reservations ........................................ 30
B.
Chapter Eleven of The NAFTA Does Not Develop
an Objective Test ..................................................................................... 40
C.
Public Purpose in the NAFTA Lacks Hierarchical
Structure ................................................................................................... 41
D.
The Chapter Eleven Framework Indiscriminately
Incorporates and Comingles Terms of Art from the
GATT: An Unwanted Cross-Pollenization .............................................. 42
E.
The NAFTA Standard Public Purpose Exceptions
and the Treaty Reservation Public Purpose
Category: Harmonizing a Dichotomy ...................................................... 47
F.
Beyond the NAFTA Chapter Eleven Framework:
The NAFTA’s Anatomy Provides for an Expansive
Construction of the Public Purpose Doctrine and the
“Legitimate Objective” Standard ............................................................. 53
G.
Conclusions and Observations ................................................................. 63
H.
The Jurisprudence of Public Purpose in the NAFTA .............................. 66
1.
The Metalclad Legacy: One Extreme .......................................... 70
2.
An “Effects Test” Beyond the Purview of
Public Purpose ............................................................................. 77
3.
Revisiting Methanex Through the Prism of
the Public Purpose Doctrine......................................................... 82
I.
The Methanex Approach and a Swing of the
Pendulum ................................................................................................. 83
J.
Beyond Metalclad and Methanex: The NAFTA
Jurisprudence ........................................................................................... 93
EAST\64724221.3
1.
The Public Purpose Legacy of Metalclad
and Methanex ............................................................................... 97
2.
A Broader Examination of The NAFTA’s
Jurisprudence and Other Investor-state
Decisional Law: In Search of a Viable
Public Purpose Framework .......................................................... 98
3.
The Tecmed Contribution .......................................................... 105
i
TABLE OF CONTENTS
(continued)
Page
4.
The Police Power Dichotomy and Feldman
v. Mexico ................................................................................... 119
5.
Reflections on Conventional International
Law’s Use of Public Purpose ..................................................... 125
Chapter 2
Identifying Public Purpose in Customary
International Law: Select International Instruments .............................. 128
A.
The Place of the Public Purpose Doctrine in
Customary International Law ................................................................ 129
1.
Revisiting Fundamentals of Customary
International Law ....................................................................... 129
B.
Foundational Concerns Endemic to Customary
International Law Challenging the Development of
a Public Purpose Doctrine...................................................................... 134
C.
Discovering and Reviving the Public Purpose
Doctrine in International Instruments .................................................... 141
D.
The Many Names of the Public Purpose Doctrine:
Exploring Uniformity and Multifarious
Nomenclature ......................................................................................... 143
E.
Evidence of Scope and Substance of the Public
Purpose Doctrine in Select International
Instruments ............................................................................................. 146
EAST\64724221.3
1.
Identification, Scope, and Content of the
Public Purpose Doctrine Within
International Instruments Concerning
Transnational Trade and Investment: A
Doctrine that Expands Sovereignty Within
Instruments that Limit State Authority ...................................... 146
2.
Public Purpose in UNCTAD and WTO
Instruments ................................................................................. 146
3.
Public Purpose and the United Nations
Conference on Trade and Development .................................... 148
4.
UNCTAD World Investment Report 2012 ................................ 157
5.
The Public Purpose Doctrine and
Sustainable Development........................................................... 163
6.
The Public Purpose Doctrine and Lessons
From UNCTAD ......................................................................... 178
ii
TABLE OF CONTENTS
(continued)
Page
F.
G.
What Does it All Mean? ........................................................................ 179
1.
The South African Development
Community Model Bilateral Treaty
Template .................................................................................... 180
2.
The Sustainable Development Expression of
the Public Purpose Doctrine in BITs ......................................... 197
a.
The Canada - China BIT ................................................ 199
b.
The Colombia-Japan BIT ............................................... 207
c.
The Croatia-Azerbaijan BIT .......................................... 213
d.
The Japan - Independent State of
Papua New Guinea BIT ................................................. 216
The Public Purpose Doctrine in WTO International
Instruments ............................................................................................. 218
1.
WTO Doha Ministerial Declaration:
November 14, 2001 .................................................................... 220
2.
Public Purpose and the WTO Agreement on
Trade-Related Aspects of Intellectual
Property Rights (1994)............................................................... 224
3.
The Public Purpose Doctrine in the WTO
General Agreement on Trade in Services
(1994) ......................................................................................... 226
Chapter 3
Defining the Profile of the Public Purpose Doctrine
in Human Rights Conventions ............................................................... 230
A.
Public Purpose Doctrine as a Fulcrum for a
Hierarchy of Human Rights ................................................................... 254
1.
The African Charter on Human and Peoples’
Rights ......................................................................................... 255
2.
The Findings and Effects of the European
and American Human Rights Conventions,
and the African Charter on the Customary
International Law Development of the
Public Purpose Doctrine ............................................................ 260
3.
The Jurisprudence of the European Court of
Human Rights and Public Purpose
Constraints on Regulatory Sovereignty ..................................... 263
a.
EAST\64724221.3
Farrugia v. Malta............................................................ 263
iii
TABLE OF CONTENTS
(continued)
Page
b.
Leyla Sahin v. Turkey .................................................... 269
Chapter 4
The Effect of Bilateral Investment Treaties on the
Public Purpose Doctrine and the Public Purpose
Doctrine’s Distortion of Symmetry in Bilateral
Investment Treaties: Discerning Order and
Structure ................................................................................................. 283
A.
An Analysis of The Relationship Between Structure
And Content: A Fragmented Framework Within A
Decentralized Body of International Law, And A
Legacy Public Purpose Doctrine ............................................................ 284
B.
1.
Unsettled Structural Issues in the
Framework of Bilateral Investment Treaties ............................. 284
2.
The Findings of Empirical Analysis of
Public Purpose in BIT Clauses .................................................. 286
Public Purpose in the Form of Sustainable
Development Language in BITs and Combinations
of Sustainable Development, and Health, Safety &
Environment, or Labor ........................................................................... 288
1.
A Rich Preamble: Sustainable Development,
Health, Safety & Environment, and Labor ................................ 289
2.
The GATT Article XX Exceptions in BITs ............................... 294
Chapter 5
Permanent Sovereignty Over Natural Resources ................................... 327
A.
PSNR: The Structural Foundations of a Doctrine.................................. 330
1.
General Assembly Res. 523 and 626 ......................................... 330
B.
The Development of the Nomenclature Permanent
Sovereignty over Natural Resources and the
Creation of a Commission ..................................................................... 336
C.
Seminal Decisional Law on PSNR ........................................................ 351
Chapter 6
The Role of Public Purpose in Foreign Investment
Protection Statutes; Can FIPS Rehabilitate the
Doctrine? ................................................................................................ 356
A.
The Public Purpose of FIPS Investor Protection ................................... 363
B.
FIPS Carve-outs and Public Purpose ..................................................... 371
C.
Dispute Resolution Clauses in FIPS and Public
Purpose................................................................................................... 380
EAST\64724221.3
iv
TABLE OF CONTENTS
(continued)
Page
D.
The Teachings of FIPS Public Purpose Analysis
And The Use of FIPS as Remedial Doctrinal
Instruments ............................................................................................. 386
CONCLUSIONS............................................................................................................ 391
BIBLIOGRAPHY .......................................................................................................... 400
Appendix I.
A Comparison Between the Performance
Requirements Articles of the Canada-Jordan BIT
and the Colombia-Japan BIT ................................................................. 418
Appendix II.
An Empirical Review of the Preeminence of the
Public Purpose Doctrine Throughout the EverExpanding Universe of Bilateral Investment
Treaties ................................................................................................... 423
Appendix III. A Spatial Comparison of Provisions Relating to
Investment Protection, Incentives and Dispute
Resolution in Foreign Investment Promotion
Statutes and Bilateral Investment Treaties ............................................. 440
EAST\64724221.3
v
INTRODUCTION
I.
SCOPE AND PURPOSE OF THE RESEARCH
The purpose of the present work is to comply with the requirement
necessary to obtain the PhD degree. This work has been developed
pursuant to Article 31 of the University Reform Act (Ley de Reforma
Universitaria) and its development legislation, upon which it was
delimited the characteristics for the PhD programs as well as the Doctorate
Thesis. The Thesis then it is defined as an original work research-project
about a topic related to the scientific, technical or artistic field of the PhD
that is carried out by the PhD applicant. Its purpose is the specialization
of the PhD applicants in such specific field and their formation in research
techniques. In the following pages, the PhD applicant will explore the
concept of the doctrine of Public Purpose and its application and
development in the international law.
Economic globalization and non-territorially based understandings of
sovereignty have underscored a need to revisit, or perhaps just simply
visit, the role of the public purpose doctrine in customary and
conventional international law. The tension between a State’s legitimate
right to regulate, and its equally genuine and binding obligations
concerning foreign investment protection often rest on the scope and
application of this doctrine. Unlike the orthodox territorially grounded
principle of sovereignty, the public purpose doctrine has commanded little
attention from jurists and scholars. Therefore, it has not developed to meet
the multiple demands of capital-exporting and capital-importing countries
in a Global environment. The legacy public purpose doctrine reflects a
substantively bankrupt doctrine that is nearly eviscerating itself. Economic
globalization has called for a qualification of public purpose in
international law. This text seeks to contribute the mere suggestion of a
first modest step towards this now quite necessary undertaking.
In order to contextualize the nature of the relevant issues that place in
high relief the inadequacies of the legacy-orthodox application of the
public purpose doctrine in an era of economic globalization and of an
attendant conceptualization of sovereignty that prioritizes the needs of the
international community over the perceived national interests of particular
EAST\64724221.3
1
States, the origins of the public purpose doctrine in international law,
which the author identify as resting in Classical Greece, need to be
summarily reviewed.
As previously mentioned, the doctrine of public purpose in international
law is not a self-evident truth. Its rich origins in Homeric, and later
Classical Greece, however, have contributed to a modern understanding of
the doctrine as a concept that is intuitive, self-evident, and, therefore, one
that would only be obscured by discursive reasoning seeking to reduce to
syllogistic form its normative foundation. To explain a self-evident truth
in order to submit to the light of reason its underpinnings, so the argument
suggests, is to obscure the very object sought to be explained. The
incomplete conception of the public purpose doctrine developed in
Classical Greece as a principle of international law and justice provided
very limited conceptual space for the consideration of “foreign” interests
while championing the polity’s public purpose objectives often to the
detriment of the rights of foreigners.
The Greece of Homer, Socrates, Plato, Aristotle, the great playwrights,
and the elegant analytics of euclidian geometry that gave birth to the
founding tenets of Western philosophy, literature, and mathematics,
simply did not recognize a common public purpose doctrine that
enveloped multiple city-States, expanding beyond the geopolitical
subdivisions of a single πολισ (“polis”). The original and legacy origins of
public purpose as a principle of international law were sufficiently
circumscribed to the political boundaries of the πολισ and to language so
as to justify slavery, and the taking of a slave’s property for the public
purpose of serving the common good. It provided for two takings, the first
of which was the very act of enslaving, i.e., the taking of a slave as
property, as further discussed below in the analysis of terms. Thus, the
mere crossing of a political/territorial boundary of one πολισ to the next
would transform a free citizen into a slave. The perceived public purpose
and benefit to the πολισ was deemed sufficient to justify a dehumanized
status of captives from person to commodity. This slave status is most
eloquently explained by the actual words used for slaves first appearing in
Homer (δμὤσ f. or δμοσ m.), and later in Attic-Classical Greek
(ανδραπωδων), both of which not too loosely may be translated as
“plunder with feet.”1 It thus follows that under this rubric the act of
1
Even Greece’s keenest philosopher argued in favor of the commodification of human
beings when concerning slave status. In Politics, Aristotle argues:
EAST\64724221.3
2
enslavement was considered to be little more than the taking of property,
of plunder or chattel with feet.
Pursuant to application of international public purpose strictures,
Classical Greece understood public purpose as a normative doctrine of
international law that enshrined the inwardness of the parochial world of
the πολισ. In this context it makes sense that the Attic Greek word for
foreigner, βἄρβαροσ, originally meant “all who were not Greeks,”
especially the Medes and Persians. More indicative still of the inwardness
that constituted the basis for public purpose and justified sacrificing the
rights of “foreigners” is the verb βαρβαριζειν, meaning to speak gibberish,
or at best, to enunciate broken Greek; an onomatopoeic word that to the
ears of Ancient Greeks resembled the guttural babble of languages other
than their own.2 The root of the English word barbarian certainly is
related to a conceptual disdain for peoples not Greek but this
conceptualization by itself cannot stand as sufficient to explain public
Just as the phrase ‘an article of property’ is used akin to the word ‘part,’
anything that is a part not only forms by definition part of something
else, but also must necessarily belong to such other thing. It is no
different as concerns an item of property. Therefore, while it is clear
that a master is only the slave’s master and cannot belong to the slave, a
slave is not just the slave of the master, but also belongs to the master
in its entirety.
These propositions clearly establish the nature of slaves and of their
fundamental quality. A slave is a human being that by nature is not
autonomous and cannot be said to belong to himself, but rather belongs
to another human being by dint of the very nature of a slave. Now a
human being who belongs to another despite being a person also must
be considered an article of property. In turn, an article of property is a
chattel, item or instrument that is susceptible to being separated or
severed from its owner.
Politics I. II. 6-8.
A person is by nature a slave when that person is such that he can
belong to another person, and indeed it is because of this capacity to
belong to another person that he so belongs, and such a person is
rational enough to understand belonging to another person but not
being himself but a slave; for other than man animals are not
subservient, animals do not follow reason, but instead are guided by
feelings.
Politics, I. II. 13-14. (Translation from the original Greek by the authors)
2
See, e.g., AN INTERMEDIATE GREEK-ENGLISH LEXICON: FOUNDED UPON THE SEVENTH
EDITION OF LIDDELL AND SCOTT’S GREEK-ENGLISH LEXICON, 146 (Oxford University
Press, 7th ed., Dec. 31, 1945) [hereinafter Liddell & Scotts Greek-English Lexicon].
EAST\64724221.3
3
purpose in international law at the time.3 It is also inextricably connected
to an inward-looking public purpose that is understood as serving the
common good of the πολισ.
Significantly, while the intuitive nature of public purpose justified
the commodification of free citizens now turned slave when wandering
into a foreign jurisdiction, “and even the philosopher, who visited foreign
countries to enrich his native land with the merchandise of science and art
was exposed to be captured and sold as a slave to some barbarian
master,”4 the taking of “property” in the form of a slave based upon a
public purpose exercised for the common good of the πολισ was not
absolute. A solitary but quite significant and now relevant exception was
recognized in the form of a treaty that ostensibly bestowed non-foreigner
status on peoples who otherwise would be deemed “barbarians.” These
original and embryonic precursors to the contemporary concept of
national treatment protection contained in conventional international law
were called σπονδαι in the plural. Even though the original source
literature that would explain the normative foundation of an agreement
preempting public purpose justification for the taking of property is scant,
its meaning is settled. It is connected to “the wine poured out to the gods
before drinking.”5 There is consensus, however, that the term for treaty,
alliance, truce, or agreement is one and the same with libations first
offered to the gods because upon concluding a truce or treaty “solemn
drink-offerings were made on concluding them.”6
3
Plato in his work, The Statesman, suggests that the origins of the word are not based on
a theory premised on onomatopoeia. He specifically States:
It appears as if in classifying peoples (citizens of other States) this
classification were to have nearly two parts, a practice that is shared by
popular culture among Greeks. On the one hand, one half of all peoples
are Greek and the other half, which includes many other peoples
unrelated to each other by blood or language, are all classified under
the single name of ‘barbarian,’ under the thinking that they have
identified a single and particular race.”
The Statesman, Lines 262 D-E. (Translation by the authors).
According to Plato’s account, the origin is based on an “otherness” that is unrelated to a
perception of languages other than Greek.
4
See HENRY WHEATON, ELEMENTS OF INTERNATIONAL LAW: WITH A SKETCH OF THE
HISTORY OF THE SCIENCE 1 (Originally published 1836 by Carey, Lea & Blanchard,
reprinted 3d ed. 2002.
5
Liddell & Scotts Greek-English Lexicon, supra note 4, at 740.
6
Id.
EAST\64724221.3
4
Parties to the treaties were called εν-σπονδοσ, meaning a party to
the treaty, or more literally, “included in a truce or treaty.”7 Similarly,
persons or peoples outside of the treaty’s ambit, i.e., non-parties or nonsignatories to the convention, were referred to as εκ-σπονδοσ (singular),
more literally translated as “out of the treaty, [or] excluded from it.”8
Conceptually it appears reasonable then that any exception to a
public purpose-based taking or confiscation in furtherance of the common
interests of the πολισ would be qualified by the “sanctity” of a treaty or
convention and in this sense somewhat partaking in an underlying
normative premise connected to the divine.
Except for a treaty or convention blessed by the gods, public
purpose-based confiscations or takings for the benefit of the πολισ
constituted a settled doctrine of international law well-established in
Classical Greece. But for this qualification, public purpose was supreme,
preempting all considerations and justifying disregard for foreigners for
the benefit of the πολισ. Wheaton in his venerable chestnut published in
1836, Elements of International Law: With a Sketch of the History of the
Science9 observed that:
Thucydides has correctly Stated the leading political
maxim of his countrymen, --’that to a king or
commonwealth, nothing is unjust which is useful.’ The
same idea is openly avowed by the Athenians, in their reply
to the people of Melos. Aristides distinguished in this
respect between public and private morality, holding that
the rules of justice were to be sacredly observed between
individuals, but as to public and political affairs, a very
different conduct was to be followed. He accordingly
scrupled not to invoke upon his own head the guilt and
punishment of a breach of faith, which he advised the
people to commit in order to promote their national
interests.10
The self-evident and nearly absolute character of the public
purpose doctrine as a protagonist in public international law keeps close to
its origins and has persisted unchanged into the twenty-first century, as to
(i) attribution of the self-evident status and (ii) virtually unqualified
7
Id. at 265.
8
Id. at 244.
9
See WHEATON, supra note 6.
10
Id.
EAST\64724221.3
5
standing and preempted only by jus cogens. Consequently, the public
purpose doctrine when invoked as part of the exercise of regulatory
sovereignty by a State in furtherance of its national interests is generally
accepted as application of an intuitive, self-evident truth no different from,
for example, fundamental human rights that are not subject to mitigation,
exception, or qualification such as the right to humane treatment,11
freedom from slavery,12 the right to name,13 and the right to not to be
subjected to torture or to inhuman or degrading treatment or punishment.14
The public purpose doctrine is practically ubiquitous in the form of
a material doctrinal and conceptual principle in both customary and
conventional international law. It is foremost present in tempering and
regulating a State’s legitimate right to regulate and its equally genuine and
binding obligation to protect foreign investors and investments. Illustrative
in this regard is the conventional and customary international law on
expropriation and the taking of property. As a general principle it is
universally accepted that a State has a right to expropriate or to nationalize
directly or indirectly, or to undertake acts tantamount or equivalent to an
expropriation or nationalization of property pertaining to a non-citizen so
long as such a measure is taken (i) for a public purpose, (ii) in a nondiscriminatory manner, (iii) in accordance with due process of law, and
(iv) on payment of compensation. In addition to being central to any
analysis concerning the protection of foreign investor rights, defining the
scope of a sovereign’s regulatory space, and harmonizing conflicts
between international trade law and domestic regulations, the doctrine is
pivotal to the application of international human rights and to the
workings of such public international law doctrines as permanent
sovereignty over natural resources, and numerous iterations of sustainable
development (i.e., health, safety, & environment, labor, and economic
regulation).
Despite the public purpose doctrine’s preeminence in public
international law and its time-honored historical prominence, public
purpose remains an elusive concept. It is not rigorously defined anywhere
in customary or conventional law. What sparse pronouncements exist on
“the jurisprudence of public purpose in international law” is mostly
inconclusive and merely suggest that, although not without limits, States
11
See, e.g., American Convention on Human Rights art. 5, Nov. 22, 1969, 1144 U.N.T.S.
123 (entered into force on July 18, 1978) [Hereinafter American Convention] .
12
Id. at art. 6.
13
Id. at art. 18.
14
See, e.g., European Convention for the Protection of Human Rights and Fundamental
Freedoms, as amended by Protocols Nos. 11 & 14, art. 3, Nov. 4, 1950, 213 U.N.T.S. 222
[hereinafter European Convention].
EAST\64724221.3
6
enjoy wide discretion in determining what constitutes public purpose.
Such pronouncements are of little utility for use of the doctrine in the
present, and inspire little hope for greater understanding in the future. 15
Moreover, the treatment of the doctrine as encompassing “all things
public” based upon a subjective content that is self-judging on the part of
States and, therefore, not susceptible to challenge, may have been viable in
an international law framework based upon orthodox understandings of
sovereignty in turn premised on territoriality in an environment of preeconomic globalization. Such “practical or functional success” was
possible where States asserted “international-independence” within a
rubric where national interests were perceived to be segregated from the
common concerns of the international community of States. This paradigm
no longer exists.
The advent of economic globalization has introduced a paradigm
of interdependence. Traditional notions of territorially based Westphalian
sovereignty are no longer responsive to the common needs of nations.
International human rights law serves as a model of a new sovereignty that
is neither absolute nor any longer resting on geopolitical borders. In this
15
Commenting on this issue Schrijver observes:
In most relevant arbitral decisions, the view has been taken that a
lawful nationalization or expropriation must serve a public purpose
[citation omitted] but sometimes with qualifications. For example, in
the Liamco case it was held:
‘As to the contention that the said measures were
politically motivated and not in pursuance of a
legitimate public purpose, it is the general opinion in
international theory that public utility is not a
necessary requirement for the legality of a
nationalisation’ [citation omitted]
….While many conclude that the demand of a ‘public interest’ or
‘public purpose’ should be maintained, there is recognition of the fact
that ultimately it is the taking government which determines the public
purpose or utility of a particular expropriation, and that in many cases,
it can be taken as impossible that an international court or organization
can form a reasonable judgment on the accuracy of a claim by a State
that an action served a public purpose. [citation omitted]
In Summary, a State is not completely free to determine the
justification and conditions for a nationalization but is bound by certain
international law requirements. In practice, however, it has wide
margins of discretion.
NICO SCHRIJVER, SOVEREIGNTY OVER NATURAL RESOURCES: BALANCING RIGHTS
DUTIES, (Cambridge University Press, 1997) at pp. 291-292.
EAST\64724221.3
7
AND
new space and era that economic globalization delineates, a legacy public
purpose doctrine that is self-judging (subjective), based upon models of
dependence, and conducive to “all or nothing” results, will frustrate the
expectations of both capital-exporting and capital-importing States, as
well as the answers to fundamental questions of process legitimacy in the
adjudication of investor-state disputes. Can this legacy public purpose
doctrine be re-defined so as to comport with paradigms of
interdependence, the exigencies of economic globalization, and the
expectations of home and Host States? Are there NGOs appropriately
positioned and sufficiently credentialed to lead this effort? Is the legacy
public purpose doctrine susceptible to substantive reconfiguration so as to
account for international principles of proportionality and bilateralism?
What would be the mechanics pursuant to which the content, scope, and
application of the doctrine may be conditioned in order to satisfy an
objective standard? Is the prevailing paradigm of Global interdependence
sufficiently developed so as to cause the international community of
nations to set aside competing interests and reach a consensus on a neutral
and objective-based understanding of public purpose in customary and
conventional international law?
More fundamentally still, are the various iterations of public
purpose such as environmental concerns, human, animal and plant life,
national security, and exercise of police powers susceptible to being
classified under the overarching umbrella nomenclature of “public
purpose”? Is the doctrine of public purpose susceptible to hierarchical
categorization if indeed there are multiple subject-matter public purposes?
Can a government by decree transform a governmental initiative and
objective, such as the “institutionalization” and perpetuation of a political
revolutionary agenda, into a public purpose within the purview of the
public purpose doctrine? This latter inquiry is particularly applicable in the
context of nationalizations or expropriations undertaken in furtherance of
the alleged public purpose of promoting alleged revolutionary and
political ideological principles.
While not purporting to provide exhaustive and conclusive answers
to these inquiries, and other equally relevant queries, this contribution
does aspire to address these concerns.
II.
CONSIDERATIONS ABOUT THE METHODOLOGY USED
In addition to the methodological requirements, a PhD thesis should
comply with the essential requirements related to originallity, novelty, and
topicality of the subject matter of the research, its scientific basis and the
probability to be pragmatically applied. The selection of the research
method is subject to the purpose aimed to be reached and the nature of the
EAST\64724221.3
8
field of research, in this present case the international public law,
specifically speaking the concept of public purpose.
If law is considered as a complex field with multiple areas, it is
understood that it should be studied from different perspectives. The
method is, then, the way of the critical thinking in order to find the truth,
therefore it complies with the formulation of ideas, the organization of the
reasoning in a theoretical system; and finally, its rational exposition of
certain idea or topic to the public audience. In consequence, the validity
given to one or another method will be subject to the framework of the
specific field of study.
As it is generally known, international public law is a field that is
evolving through the time, the historical factas and the multiple
international relations that are continually happenning among States
compels the conduct of individuals and countries to certain standards.
Therefore an historical approach is demanded. Today, the law, in general
terms, is evolving, in other words, transforming itself. There are several
rules, laws, and regulations, as well as sources of law that continuously
change, however the tenets of the international consuetudinary and
convencional law still prevail. The general principles of law, the norms of
ius cogens, have a universal recognition. The States in their own
development create norms, rules and regulation.
This power to
unilaterally create new rules is part of the characteristic of novelty that
attaches to the power of States, which in no way is empty of juridical
content. The mere existence of rules whose purpose is to protect higher
values, which the international community considers indispensable to the
community, determines a necessity to understand these higher principles.
Therefore a inductive and deductive approach have to be applied.
In that regard, it is a common approach to affirm that the public purpose
is present in all the political actions of a state/government, however, there
is no, in our personal perspective, an specific and narrow identification
about its scope and limits. Given the broad meaning of this concept,
influence by political issues, it is important to establish certain boundaries
based on the historical and pragmatic perspective. To do that it is
necessary to do a brief hystorical research about the doctrine of public
purpose, in order to find out its roots and necessary meaning. As it is
generally understood, Public International law is an independent system of
law existing outside the legal orders of particular states. It differs from
domestic legal systems in a number of respects. For instance, there is no
EAST\64724221.3
9
system of courts with comprehensive jurisdiction in international law.
There is no international police force or comprehensive system of law
enforcement, and there also is no supreme executive authority.
Additionally, public international law is a distinctive part of the general
structure of international relations. In contemplating responses to a
particular international situation, states usually consider relevant
international laws. Although considerable attention is invariably focused
on violations of international law, states generally are careful to ensure
that their actions conform to the rules and principles of international law,
such as public purpose, because acting otherwise would be regarded
negatively by the international community. The rules of international law
are rarely enforced by military means or even by the use of economic
sanctions. Instead, the system is sustained by reciprocity or a sense of
enlightened self-interest. States that breach international rules suffer a
decline in credibility that may prejudice them in future relations with other
states or investors. Thus, a violation of a treaty by one state to its
advantage may induce other states to breach other treaties and thereby
cause harm to the original violator. Furthermore, it is generally realized
that consistent rule violations would jeopardize the value that the system
brings to the community of states, international organizations, and other
actors. This value consists in the certainty, predictability, and sense of
common purpose in international affairs that derives from the existence of
a set of rules accepted by all international actors. International law also
provides a framework and a set of procedures for international interaction,
as well as a common set of concepts for understanding it.
Under that framework is upon which the concept of public purpose also
evolve and need to be understood through an historical, inductive and
deductive approach, but more importantly through a pragmatic view that
most of the tribunals –international ones- have given to the content of its
meaning.
III.
CONTENT, PURPOSE AND STRUCTURE OF THE THESIS
While not purporting to provide exhaustive and conclusive answers, this
contribution does aspire to address several concerns within the framework
of six chapters, each of which contains multiple subparts.
The first chapter uses the framework of the NAFTA as a microcosm of
customary and conventional international law to explore the public
purpose doctrine as an exception, more precisely a reservation, to treaty
EAST\64724221.3
10
obligations addressing investment protection provided to the NAFTA
parties. Thus, emphasis is placed on Chapter Eleven of the NAFTA
(Investment Services and Related Matters). As to methodology, the
NAFTA Chapter Eleven first is analyzed strictly within the Chapter’s
context and then more generally in select chapters where public purpose
serves a foundational role in defining the scope, content and, application
of specific provisions. The treatment of the public purpose doctrine in the
NAFTA’s text, beyond the Chapter Eleven framework is used as a
predicate to tracing the doctrine’s contours in conventional international
law. Foundational NAFTA arbitral opinions, i.e., the NAFTA’s
“decisional law” also is used as a tool for penetrating the orthodox view of
the public purpose doctrine in customary international law. Thus, as
Chapter Eleven is to the remainder of the NAFTA framework, so is the
entirety of the NAFTA to conventional international law. It also draws a
distinction between treaty-based reservation exceptions and public
purpose exceptions.
This first chapter sets forth the analytical methodology used in
subsequent chapters to identify the workings of the doctrine within the
parameters of specific subject-matter treaties, such human rights
conventions, but also within international law instruments concerning
macroeconomics that have contributed to the formation and transformation
of the public purpose doctrine in customary international law. Finally,
chapter one aspires to understand whether the cross-fertilization between
public purpose-based exceptions imported from international trade law
into international investment protection law may affect the relationship
among the delicate and competing interests of capital-exporting States and
their capital-importing counterparts. The chapter concludes with
reflections on conventional international law’s use of public purpose.
Chapter two aspires to identify both the role and status of the public
purpose doctrine in customary international law. It does so, however, first
by testing the quantity and content of the public purpose doctrine in
customary international law and rejecting an a priori judgment even as to
the doctrine’s very existence. This chapter posits that common elements of
public purpose compellingly argue in favor of a single public purpose
doctrine that even when embedded in instruments that limit a State’s
domestic regulatory space, the doctrine despite its multiple iterations
broadens the regulatory authority of States. The chapter further advances
the proposition that meaningful contributions to the content and scope of
the public purpose doctrine arose from the tension between capital-
EAST\64724221.3
11
exporting and capital-importing countries. Here careful consideration is
accorded to the WTO Agreement on Trade-Related Aspects of Intellectual
Property Rights (1994), the WTO General Agreement on Trade in
Services (1994), and the WTO DOHA Ministerial Declaration: Nov. 14,
2001, all of which are used as analytical and synthetic instruments that
help explain the existing shortcomings of the legacy public purpose
doctrine, and also are suggestive of detailed ways in which the doctrine
can be developed to meet the demands of economic globalization, the
interests of both industrialized and under-developed countries, and the
often conflicting requirements of a paradigm of transnational political and
economic interdependence. The recurring motif of the right to regulate and
this right’s relationship to a State’s international obligations is viewed in
the context of the UNCTAD World Investment Report 2012, and the
Principle of Sustainable Development.
The public purpose doctrine’s role in the law of international human
rights is examined through the lenses of (i) the African Charter on Human
and People’s Rights, (ii) the European Convention on Human Rights, and
(iii) the Inter-American Convention on Human Rights in chapter three.
These three conventions are used to analyze the extent to which the public
purpose doctrine has been influenced by regional historical developments
as to scope and content. In this context, historicity is understood as a
temporal and constraining element that need not form part of the public
purpose doctrine of the twenty-first century. Chapter three also asserts that
delineating the public purpose doctrine as it appears in international
human rights law serves as a tenet that is fundamental in identifying a
hierarchy of human rights precepts that enjoy a status akin to that of jus
cogens. The analysis advanced in this chapter helps to facilitate an
understanding of public purpose in international law as a doctrine that
must be subjected to discursive reasoning and, therefore, cannot be treated
as a self-evident truth the normative foundations of which are intuitively
known.
Chapter four chronicles the effect of bilateral investment treaties on the
public purpose doctrine, as well as the doctrine’s distortion of symmetry
and bilateralism in the conventional international law of investment
protection. Specifically, the virtually ad hoc and decentralized framework
of bilateral investment treaties is considered from the perspective of the
manner in which structural framework issues attendant to BITs have
contributed to the contemporary understanding of the legacy public
purpose doctrine.
EAST\64724221.3
12
Chapter five primarily advances the proposition that the principle of
Permanent Sovereignty over Natural Resources (PSNR) constitutes an
expression of the legacy public purpose doctrine. This chapter also
attempts to identify formal and substantive connections between PSNR
and the Principle of Sustainable Development, the latter also is treated as
an important iteration of the legacy public purpose doctrine. The status of
the public purpose doctrine in customary international law is critically
revisited in this chapter. The conceptual effects of PSNR on regulatory
sovereignty, and host-State investor protection obligations are also
reviewed.
Finally, chapter six addresses domestic legislation purporting to protect
foreign investors in order to attract FDI. This chapter compares and
contrasts FIPS (Foreign Investment Protection Statutes) to BITs, focusing
on structure, content, and the role of the public purpose doctrine. In
addition it is suggested that the FIPS’s structural configuration may serve
as a practical and effective instrument of reform that may contribute to the
much necessary remedial work that is required to redeem the public
purpose doctrine’s promise to harmonize the right to engage in regulatory
sovereignty with the obligation to enforce juridically binding foreign
investor protection obligations. This final chapter aspires to demonstrate
the subtle and more immediate relationships between the preceding five
chapters and eight very particular suggestions of ways in which FIPS may
be used in concert among interested members of the international
community to render the public purpose doctrine relevant to the needs of
nations and to the struggle for transparency in the quest for process
legitimacy..
EAST\64724221.3
13
CHAP
PTER 1
Public Purpose in
n NAFTA
EAST\64
4724221. 314
The North American Free Trade Agreement16 constitutes an ideal
Petri dish for any inquiry as to the status of the public purpose doctrine in
public international law. Featuring a comprehensive self-contained treaty
structure comprising eight parts, 22 chapters, and seven annexes, the
NAFTA can serve as a microcosm of public international law, particularly
as to trade and investment. In addition, this treaty framework, most
notably because of Chapter Eleven (Investment), has spawned its own
“jurisprudence” arising from contracting party arbitrations. This
“decisional-law” at least theoretically, in part serves to help define
fundamental principles of international trade and investment law that are
endemic to the NAFTA.
The seemingly all-encompassing breath of the NAFTA-treaty
framework ranging from national treatment and market access for goods to
temporary entry for business persons, together with ambitious but practical
objectives concerning (i) the elimination of barriers to trade, (ii) the
promotion of conditions for fair competition in a free trade area, (iii) a
commitment to increasing investment opportunities, (iv) the protection of
intellectual property rights, (v) the provision of procedures for dispute
resolution, and (vi) the establishment of a framework for further trilateral,
regional, and multilateral cooperation to maximize the benefits of the
treaty, provide an ideal configuration for understanding the role of the
public purpose doctrine more broadly in customary and conventional
international law beyond the scope of just a single treaty. Put simply, the
NAFTA, with the benefit of the investor-state decisional law that it has
spawned, much like Leibniz’s monads, each said to have been
imperceptibly small but reflecting the entire universe, can be said to
embody in some sense the fundamental precepts of the public international
law of trade and investment protection. Equally relevant for purposes of
this analysis is the NAFTA’s application of the public purpose doctrine
broadly throughout the whole of its treaty framework, but more
particularly in its Chapter Eleven rubric. The NAFTA references and
relies on the public purpose doctrine directly in the most pristine form of
its nomenclature as “public purpose,” and less explicitly pursuant to the
doctrine’s multiple iterations, such as “public order,” “public morals,”
“social welfare.” It develops a “public purpose standard” while also
relying doctrinally on public purpose as a substantive principle explicitly
having specific categorical or subject matter content, and thus presents the
compelling case of a principle that is more than a “boiler plate catchall”
conceivably concerning a sovereign’s exercise of sovereignty under the
banner of the public good. The NAFTA, is ideally tailored to an
exploration of the role, scope, and content of public purpose in
conventional and customary international law. Accordingly, this first
16
North American Free Trade Agreement, US-Can-Mex., Dec. 17, 1992, 32 I.L.M.639
(1993) (hereinafter NAFTA).
EAST\64724221.3
15
chapter shall serve to identify the fundamental workings of the public
purpose doctrine in a treaty framework, which includes analyses of the
doctrine’s iterations, subject matter content, application, and scope. In
tracing the edges of public purpose within the NAFTA framework, an
analytical “blueprint” will be developed that in turn shall be applied more
comprehensively in identifying the relationship between public purpose
and the sphere of regulatory sovereignty in the context of divergent
international law instruments forming part of customary international law.
The challenge of identifying and understanding public purpose within the
doctrine is one and the same from a purely analytical perspective as
identifying and studying the doctrine’s role and effect in customary
international law. Challenges common to a single treaty analysis and
consideration of numerous international law instruments pertaining to
different fields of law and regions of the world promise to facilitate the
exercise while preserving its virtually infinite and inviting challenges.
The NAFTA rubric has carved a meaningful and substantive space
for public purpose. Throughout the NAFTA Chapter Eleven scheme,17
17
Chapter 11 of the North American Free Trade Agreement forms part of PART 5
entitled: INVESTMENT SERVICES AND RELATED MATTERS, Chapter 11,
Investment. This chapter of the NAFTA is most unique because it comprises both
international trade law and international investment law, at times indiscriminately
intermingling both concepts. Id.
For example, Chapter 11 incorporates the orthodox standards found in customary and
conventional international investment law aimed at protecting foreign investors that also
represent substantive claims for affirmative relief: Article 1102 (National Treatment),
Article 1103 (Most-Favored Nation Treatment), Article 1104 (Standard of Treatment),
Article 1105 (Minimum Standard of Treatment), and Article 1106 (Waver of
Performance Requirements). Id.
Significantly, however, paragraph 6 of Article 1106 engages in the wholesale importation
of recognized principles of international trade law that comprise the fundamental general
exceptions found in Article XX of the General Agreement on Tariffs and Trade (GATT)
relating to the protection of human, animal or plant life and health, providing:
Provided that such measures are not applied in any arbitrary or
unjustifiable manner, or do not constitute a disguised restriction on
international trade or investment, nothing in paragraphs 1(b) or (c) or
3(a) or (b) shall be construed to prevent any Party from adopting or
maintaining measures, including environmental measures:
(a) necessary to secure compliance with laws and regulations
that are not inconsistent with the provisions of this Agreement;
(b) necessary to protect human, animal or plant life or health;
or
(c) necessary for the conservation of living or non-living
exhaustible natural resources.
Id. art. 1106 ¶ 6; cf. General Agreement on Tariffs and Trade art. XX, Oct. 20, 1947, 55
U.N.T.S. 188, 262 [hereinafter GATT]. The challenges that the co-mingling of
international trade law and international investment law principles raise are significant
with respect to the development of a public purpose doctrine that seeks legitimacy based
EAST\64724221. 316
public purpose is explicitly referenced only once.18 The doctrine of public
purpose, however, is conceptually addressed without the identifying
“public purpose” nomenclature on ten distinct occasions.19 The most
significant reference is found in Article 1101(4). This provision reflects
well conceived temperance on the part of the NAFTA parties in their
treatment of public purpose. The article merits citation in its entirety:
1.
This Chapter applies to measures adopted or
maintained by a Party relating to:
investors of another Party;
investments of investors of another Party in
the territory of the Party; and
with respect to Articles 1106 and 1114, all
investments in the territory of the Party.
2.
A Party has the right to perform exclusively the
economic activities set out in Annex III and to
refuse to permit the establishment of investment in
such activities.
upon an objective standard, uniform application, and a configuration that comports with
the effects of economic globalization on the concept of sovereignty in the 21st century, as
more fully discussed in this text.
18
NAFTA Article 1110, entitled “Expropriation and Compensation,” directly references
“public purpose” as one of four (4) predicates to a lawful nationalization or expropriation
under international law. Article 1110 reads:
Expropriation and Compensation
1. No Party may directly or indirectly nationalize or expropriate an
investment of an investor of another Party in its territory or take a
measure tantamount to nationalization or expropriation of such an
investment (“expropriation”), except:
(a) for a public purpose;
(b) on a non-discriminatory basis;
(c) in accordance with due process of law and Article 1105(1); and
(d) on payment of compensation in accordance with paragraphs 2
through 6.
NAFTA, supra note 18, art. 1110 ¶ 1(a)-(d) (emphasis supplied).
19
See, e.g., id. art. 1101 ¶ 4; art. 1105 ¶ 3; art. 1106 ¶¶ 2, 4, 6(a)-(c); art. 1108 ¶¶ 1, 3; art.
1110 ¶ 8; art. 1114 ¶¶ 1, 2.
EAST\64724221. 317
3.
This Chapter does not apply to measures adopted or
maintained by a Party to the extent that they are
covered by Chapter Fourteen (Financial Services).
4.
Nothing in this Chapter shall be construed to
prevent a Party from providing a service or
performing a function such as law enforcement,
correctional services, income security or insurance,
social security or insurance, social welfare, public
education, public training, health, and childcare, in
a manner that is not inconsistent with this Chapter.20
The term “such as” in paragraph four suggests that the NAFTA parties
were aware that reducing the public purpose doctrine to a definition was
not possible.21 The eleven disciplines identified in paragraph four, ranging
from law enforcement to childcare, are neither exclusive nor exhaustive.
Instead, they are categorical but thematically consistent with each other
based upon having a “public character” as a common denominator.22
20
Id. art. 1101 (emphasis supplied).
21
See, e.g., Alberto R. Salazar V., Ph.D., NAFTA Chapter 11, Regulatory Expropriation,
and Domestic Counter-Advertising Law, 27 ARIZ. J. INT’L & COMP. L. 31, 44-45 (2010)
(identifying Art. 1101(4) as one of the provisions in Chapter 11 that operates to “shed
important light on a possible definition of public purpose,” but noting that “while this
NAFTA provision permits governments to provide essential public services, it largely
limits or negates the public purpose exception to trade rules due to its NAFTA
compatibility requirement.”); Benjamin W. Jenkins, The Next Generation of Chilling
Uncertainty: Indirect Expropriation Under CAFTA and Its Potential Impact on
Environmental Protection, 12 OCEAN & COASTAL L.J. 269, 294 (2007) (arguing that Art.
1101(4) “highlights the uncertainty surrounding when a legitimate public policy goal
might be considered an expropriation” and that in some circumstances the services
alluded to in the provision “could be provided in a way that is inconsistent with chapter
11.”); L. Kinvin Wroth, Lingle and Kelo: The Accidental Tourist in Canada and NAFTALand, 7 VT. J. ENVTL. L. 62 (2006) (noting that Art. 1101(4) recognizes “a Party’s right
to take domestic measures for certain police power purposes, expressly including
environmental measures, though these measures must be consistent with Chapter 11.”).
22
In the June 15, 1992 draft of article 1101(4), Mexico sought to broaden the scope of
this paragraph, by including all branches of government, a public purpose category
entitled “Public Retirement Plans,” and welfare services. Additionally, “services”
identified in statutes pertaining to specific public purpose categories were included:
4. MEX[Nothing in this Chapter prevents a Party through its executive,
legislative and judicial bodies, from providing services or functions
such as public welfare services and services forming part of a statutory
system of social security, public health care, public education, and
public retirement plans to its citizens.]
Draft of June 15, 1992, OFFICE OF U.S. TRADE REP., EXEC. OFFICE OF THE PRESIDENT,
NAFTA CH. 11 TRILATERAL NEGOTIATING DRAFT TEXTS [Hereinafter NAFTA
EAST\64724221. 318
Article 1101(4) adjusts for the elusive status of public purpose in
international law by fashioning a criterion or standard rather than a
definition for the doctrine.23 The final subordinate clause of the paragraph,
“that is not inconsistent with this Chapter,” is consonant with both a
“proportionality” and an “effects test,” as the plain language itself invites
policy comparison and contrast.
Paragraph four of Article 1101 of the NAFTA, when construed as
a standard, represents a meaningful contribution towards vesting the
public purpose doctrine with uniformity while tacitly acknowledging the
conceptual difficulties endemic to an international law doctrine
Negotiating Drafts]. All NAFTA negotiating documents are available for download at the
Office
of
United
States
Trade
Representative,
http://www.ustr.gov/archive/assets/Trade_Agreements/Regional/NAFTA/NAFTA_Chapt
er_11_Trilateral_Negotiating_Draft_Texts/.
23
The United States, in the August 4, 1992 draft pertaining to this paragraph, sought to
place limits on “public purpose” and to limit its subjective content but in so doing
emphasized the circular reasoning that is so common to this undertaking. Specifically, the
U.S. proposed that “[t]he term ‘public purpose’ does not include the deliberate
disadvantaging of investors of another Party or country.” Id. (Draft of Aug. 4, 1992)
(emphasis supplied). Pursuant to this stricture, the proscribed conduct would entail an
inquiry into the subjective motive (“deliberate”) of the State in characterizing an act as
within the ambit of public purpose. Consequently, the effort does not bring us closer to a
narrowly defined public purpose construct that would limit overreaching by sovereigns.
This proposed language formed part of a broader proposal qualifying a sovereign’s ability
to act through State enterprises:
USA
[1. This Chapter, and in particular the obligation to accord
nondiscriminatory treatment to investments in the territory of a Party of
investors of another Party, shall apply to the State enterprises of a
Party. (n. 16: Mexico can agree to this provision if placed outside the
Investment Chapter and only in respect of non-discriminatory treatment
when buying and selling goods or services.)
2. Where a Party owns and controls, at the federal level, State
enterprises that are not monopolies, it shall not by provision of
subsidies or otherwise, take measures to support such State enterprises
in conduct that results in serious prejudice to investors of another Party,
contrary to such investors’ reasonable expectations. This provision
shall not apply where such conduct is authorized by law to fulfill a
public purpose and is reasonably related thereto. The term “public
purpose” does not include the deliberate disadvantaging of investors of
another Party or country.]
Id. (emphasis in original). This proposed provision sought to narrow the scope of State
action that may adversely compromise foreign investments on the part of the NAFTA
Parties. Because the United States and Canada are representative of capital exporting
countries, it is consonant with this status that a narrowing of sovereign action vis-à-vis
foreign investment would be welcomed. Here, the U.S. sought to protect prospective
investments in Mexico, it stands to reason primarily but not exclusively, from adverse
effects in connection with State-owned entities at the federal level.
EAST\64724221. 319
characterized by uncertainty and want of predictability because of its
subjective content and application. Moreover, the configuration of a
standard inviting policy analysis as a predicate to application comports
with the shifting legal landscape that economic globalization has spawned;
a landscape demanding of a public purpose doctrine characterized by
greater flexibility and certainty. The “NAFTA approach” to public
purpose contributes to moving the doctrine further towards an objective
space and in this narrow sense limits or more literally defines the doctrine
by circumscribing it to the categories comprising Article 1101(4) or other
categories that conform to these elements.24
After carefully engaging in a succinct etymological and
discriminating survey of the meaning of standard in international law, in
the context of consistency of fair and equitable treatment as a standard,25
24
The Canadian Statement on Implementation supports a flexible, “standard-like”
construction of Article 1101(4). Helpful language from that text reflects the “such as”
approach to public purpose categories:
The section does not apply to any measure to the extent it is covered by
chapter fourteen relating to financial services. Article 1101 affirms the
right of a Party to perform functions (such as law enforcement) and to
provide services (such as social welfare and health). The article also
affirms the right of Mexico to perform exclusively the economic
activities set out in annex III, which lists those sectors reserved to the
State in the Mexican Constitution. To the extent that Mexico permits
foreign investment in these sectors (e.g., in the form of a service
contract or joint production arrangement), the protections of the
investment chapter apply to that investment.
Government of Canada, Statement on Implementation of the North American Free Trade
Agreement, CANADA GAZ. PART 1C(1) 147 (Jan. 1, 1994) [Hereinafter Canadian
Statement on Implementation].
25
Ioana Tudor identifies various definitions of standard in international law that
A. Sanhoury, S. Rials, and P. Julliard advance. Sanhoury asserts that a mutation occurs at
the apogee of a specific developmental stage of a legal system pursuant to which rules
and principles are no longer viable because of their inability to embrace the legal
system’s own “evolutionary development.” He observes that at this stage the standard
appears as “a more elaborated concept that leaves space for adaptation and evolving
situations [which] is embraced in order to make the system function properly. This new
concept is the standard. Its nature is more adapted because it is more general and more
flexible than rules and principles, and therefore leaves space for interpretation while it
can be applied to a broader number of situations.” IOANA TUDOR, THE FAIR AND
EQUITABLE TREATMENT STANDARD IN THE INTERNATIONAL LAW OF FOREIGN
INVESTMENT, OXFORD UNIVERSITY PRESS at 112,113 (Oxford University Press 2008)
(citing A. SANHOURY, LES RESTRICTIONS CONTRACTUELLES À LA LIBERTÉ INDIVIDUELLE
DETRAVAIL DANS LA JURISPRUDENCE ANGLAISE, CONTRIBUTIONS À L’ÉTUDE
COMPARATIVE DE LA RÈGLE DE DROIT ET DU STANDARD JURIDIQUE (1925)).
Rials defines standard as an indefinite concept which refers to the fundamental values of
society and that analyzes the behaviors of the legal actors by reference to an average
conduct.” Id. at 114 (citing S. RIALS, LE JUGE ADMINISTRATIF FRANÇAIS ET LA
EAST\64724221. 320
Tudor provides a composite picture of what is commonly understood by
standard, reduced to five precepts:
(i) the broad behavioral direction or an indeterminate
concept;
(ii) a large margin of maneuver left to the
arbitrator/judge and a very flexible character, which
allows the decision maker to adapt to a variety of
circumstances;
(iii)a link between law and society;
(iv) the reference point constituting an average social
conduct; and
(v) a reference to the conformity between national and
international law.26
A construction of Article 1101(4) as a standard for public purpose
together with the title of the article (“scope and coverage”), compels an
interpretation of the paragraph as one vesting the term “public purpose”
within Article 1110(1)(a) with a standard that removes the doctrine from
the realm of subjectivity and relativism as to expropriation and
compensation. By ascribing to public purpose an objective definitional
criteria in both theory and practice, the relationship between the
competing interests: (i) protecting foreign investments, (ii) safeguarding
the right to regulate (regulatory sovereignty), and (iii) promoting the
objectives of international trade law, is best harmonized. The importance
of this latter concern is multiplied even further because of the
commingling of public purpose categories of international trade law with
public purpose concerns underlying fundamental precepts of international
investment law. The seven “conceptual references” to public purpose in
Chapter Eleven of the NAFTA, particularly in Article 1108,27 best
TECHNIQUE DU
NORMALITE 3-4
STANDARD, ESSAI
(1980)).
26
Id. at 115.
27
Article 1108 reads:
SUR LE TRAITEMENT JURIDICTIONNEL DE L’IDEE DE
Reservations and Exceptions
1.
Articles 1102 [National Treatment Standard], 1103 [Most-Favored
Nation], 1106 [Performance Requirements], and 1107 [Senior
Management and Boards of Directors] do not apply to:
(a) any existing non- conforming measure that is maintained by
EAST\64724221. 321
illustrate the cross-contamination of public purpose elements having their
origins in international trade law and international investment law but
contained within a single chapter of a statutory rubric that must account
for the protection of foreign investments while preserving a State’s
exercise of regulatory sovereignty. The public purpose doctrine
theoretically serves as a principle that reconciles these two competing
rights and obligations.
Article 1105(3)28 identifies a public purpose in the form of
“subsidies or grants” that amply comports with the NAFTA public
(i) a Party at the Federal level, as set out in its Schedule to
Annex I or III,
(ii) a State or province for two (2) years after the date of entry
into force of this Agreement, and thereafter as set out by a
Party in its Schedule to Annex I in accordance with 2 or,
(iii) a local government;
(b) the continuation or prompt renewal of any non-conforming
measure referred to in subparagraph (a); or
(c) an amendment to any non-conforming measure referred to in
subparagraph (a) to the extent that the amendment does not
decrease the conformity of the measure, as it existed
immediately before the amendment, with Articles 1102
[National Treatment Standard], 1103 [Most-Favored Nation],
1106 [Performance Requirements], and 1107 [Senior
Management, Boards of Directors].
NAFTA, supra note 18, art. 1108 ¶ 1(a)-(c).
28
Article 1105 in its entirety provides:
Article 1105: Minimum Standard of Treatment
1.
Each Party shall accord to investments of investors of another
Party treatment in accordance with international law,
including fair and equitable treatment and full protection and
security.
2.
Without prejudice to paragraph 1 and notwithstanding Article
1108(7)(b), each Party shall accord to investors of another
Party, and to investments of investors of another Party, nondiscriminatory treatment with respect to measures it adopts or
maintains relating to losses suffered by investments in its
territory owing to armed conflict or civil strife.
3.
Paragraph 2 does not apply to existing measures relating to
subsidies or grants that would be inconsistent with Article
1102 but for Article 1108(7)(b).
Id. art. 1105.
EAST\64724221. 322
purpose standard.29 This paragraph establishes the preeminence of public
purpose in the form of subsidies or grants pertaining to armed conflict or
civil strife, over the public purpose of protecting foreign investments or
investors by according such investors or investments treatment no less
favorable than that provided to citizens of the Host State. This
pronouncement is quite significant, particularly within the narrow
framework of Article 1105, because this article encompasses virtually all
of the international investment law standards that, if satisfied, give rise to
an affirmative claim for relief on the part of an investor in an international
arbitration against a NAFTA Party.30 Thus, even though Article 1105 at
first would appear to be an eminently international investment law
provision providing for foreign investor protection, it in fact highlights
subsidies and grants, albeit within the confines of armed conflict or civil
strife, as a legitimate public purpose that overrides equitable and nondiscriminatory practices on the part of the State with respect to foreign
investors and investments. The generic nature of the terms “armed
conflict” and “civil strife” bespeaks an intent to provide a Host State with
considerable latitude and its “entitlement” to discriminate on this basis. It
also demonstrates a manifestly identifiable penchant favoring a public
purpose that furthers no regulatory State interests over investment or
investor protection.31
The public purpose categories that are enunciated in Article
1106(2), (4), and (6)(a)-(c), certainly meet the NAFTA public purpose
standard.32 The health, safety, or environmental exceptions contained in
29
The “NAFTA public purpose standard” refers to Article 1101(4). See id. art. 1101 ¶ 4.
30
Article 1105(1)-(2) includes, without limitation, (i) fair and equitable treatment, (ii) full
protection and security, (iii) non-discriminatory treatment in keeping with international
minimum standard, and (iv) non-discriminatory treatment concerning losses suffered by
investments in the Host State owing to armed conflict or civil strife. Accordingly,
expropriation and denial of justice are the only standards absent from those included in
Article 1105. See id. art. 1105.
31
The inclusion of non-qualified or ear-marked “subsidies” or “grants” in subsection 3
also suggests a heightened sense of priority favoring non-regulatory State-sanctioned
discrimination over foreign investment or investor protection. See id. art. 1105 ¶ 3.
32
Article 1106 subsections 2, 4, and 6(a)-(c) State:
Article 1106: Performance Requirements
2.
A measure that requires an investment to use a technology to
meet generally applicable health, safety or environmental
requirements shall not be construed to be inconsistent with
paragraph 1(f). For greater certainty, Articles 1102 [National
Treatment] and 1103 [Minimum Standard of Treatment] apply
to the measure.
EAST\64724221. 323
Article 1106(2) are indicative of the standard fare of international trade
law exceptions that (i) meet the NAFTA public purpose standard and (ii)
are derived from international trade law but now find themselves forming
part of the NAFTA Chapter Eleven investment regime.33 In contrast with
4.
Nothing in paragraph 3 shall be construed to prevent a Party
from conditioning the receipt or continued receipt of an
advantage, in connection with an investment in its territory of
an investor of a Party or of a non-Party, on compliance with a
requirement to locate production, provide a service, train or
employ workers, construct or expand particular facilities, or
carry out research and development, in its territory.
…
6.
Provided that such measures are not applied in an arbitrary or
unjustifiable manner, or do not constitute a disguised
restriction on international trade or investment, nothing in
paragraph 1(b) or (c) or 3(a) or (b) shall be construed to
prevent any Party from adopting or maintaining measures,
including environmental measures:
(a)
necessary to secure compliance with laws and
regulations that are not inconsistent with the
provisions of this Agreement;
(b)
necessary to protect human, animal or plant life or
health; or
(c)
necessary for the conservation of living or non-living
exhaustible natural resources.
Id. art. 1106 ¶¶ 2, 4, 6(a)-(c).
33
The “health, safety or environmental” public purpose exceptions that legitimately
empower the State to exercise its authority in ways that may be inconsistent with a
foreign investor’s business or investment, although in some circumstances compensable,
finds their genesis in international trade law. These exceptions, which shall be
demonstrated in greater detail in this text, arise from the general exceptions contained in
the GATT Article XX, which provides States with a normative foundation for
encroaching on agreed trade principles where an exception may be deemed applicable.
These exceptions have been incorporated into the NAFTA Chapter 11 without
qualification. The more relevant GATT Article XX exceptions include protection for
acts:
(a)
necessary to protect public morals;
(b)
necessary to protect human, animal or plant life or
health;
…
(d)
EAST\64724221. 324
necessary to secure compliance with laws or
regulations which are not inconsistent with the
provisions of this Agreement, including those relating
to customs enforcement, the enforcement of
Article 1105, the Article 1106(2) Public Purpose Exceptions do not
preempt the investment law tenets of national treatment and most favored
nation treatment designed to protect foreign investors and investments.
The paragraph, in an effort to underscore uniformity and predictability,
States that “[f]or greater certainty, Articles 1102 [National Treatment
Standard] and 1103 [Most-Favored Nation] apply to the measure.”34
Therefore, pursuant to an Article 1106(2) analysis, the State’s
exercise of its regulatory fiat prescribing a measure requiring an
investment to adopt specific technology so as to meet health, safety, or
environmental requirements, must be equally enforced among foreign
investors and host-State citizens. The State’s use of its regulatory authority
in this context is limited by investment law principles of nondiscriminatory practice and not left unbridled on the basis of regulatory
subject matter. As with Article 1105(3), Article 1106(2) stands in sharp
relief with the overriding standing of the public purpose categories
provided in Article 1106(4) pertaining to the (i) location of production, (ii)
provision of services, (iii) training of personnel, (iv) employment of
workers (v) construction or expansion of particular facilities, and (vi)
research and development, within the national territory.35
The Article 1106(4) public purpose categories are consistent with
the NAFTA public purposes standard. This paragraph, however, vests the
State with absolute authority to act in furtherance of the enumerated
(g)
monopolies operated under paragraph 4 of Article II
and Article XVII, the protection of patents,
trademarks and copyrights, and the prevention of
deceptive practices;
…
relating to the conservation of exhaustible natural
resources if such measures are made effective in
conjunction with restrictions on domestic production
or consumption.
GATT, supra note 19, art. XX ¶¶ (a)-(b), (d), (g).
34
See NAFTA, supra note 18, art. 1106 ¶ 2 (emphasis supplied).
35
Article 1106(4) States:
Nothing in paragraph 3 shall be construed to prevent a Party from
conditioning the receipt or continued receipt of an advantage, in
connection with an investment in its territory of an investor of a Party
or of a non-Party, on compliance with a requirement to locate
production, provide a service, train or employ workers, construct or
expand particular facilities, or carry out research and development, in
its territory.
Id. art. 1106 ¶ 4.
EAST\64724221. 325
exceptions irrespective of the consequences of these actions on foreign
investment protection or international trade either at a practical or a policy
level.36
Article 1106(6)(a)-(c) in addition to meeting the NAFTA standard,
exemplifies a direct and verbatim incorporation of the GATT Article XX
“General Exceptions”37 that materially amplify the State’s regulatory
space.38 Paragraph six tempers the “international trade law exceptions”
that favor the interest of traditional State sovereignty over investor
protection by stating that any such measure is not to be applied “in an
arbitrary or unjustifiable manner.” It does, albeit tepidly, arguably
incorporate international law providing that foreign investments and
investors are not to be arbitrarily or unjustifiably discriminated against
and, therefore, are entitled to national treatment and international
minimum standard protection. This reading is bolstered by the use of the
disjunctive “or,” which in the second subordinate clause explicitly adds
that any such measure must “not constitute a disguised restriction on
international trade or investment.”39 The first subordinate clause
36
The consequences of the exercise of the State’s regulatory and non-regulatory authority
on foreign investment represents the most significant deficit in the NAFTA’s public
purpose treaty construct. As discussed in considerable detail, see infra at Chapter 1.H(2).
The “proportionality,” “effects,” and “sole effects,” tests that the NAFTA
“jurisprudence” has fashioned in determining the extent to which a particular measure
that a State prescribes may give rise to detrimental consequences that far exceed the
remedial or public benefit stemming from the measure in question in order to pass on its
propriety are rife with conceptual and practical shortcomings that militate against
uniformity, predictability, and transparency of standard.
37
Compare NAFTA, supra note 18, art. 1106 ¶¶ 6(a)-(c) with GATT, supra note 19, art.
XX.
38
Article 1106(6)(a)-(c) provides:
Provided that such measures are not applied in an arbitrary or
unjustifiable manner, or do not constitute a disguised restriction on
international trade or investment, nothing in paragraph 1(b) or (c) or
3(a) or (b) shall be construed to prevent any Party from adopting or
maintaining measures, including environmental measures:
(a)
necessary to secure compliance with laws and regulations that
are not inconsistent with the provisions of this Agreement;
(b)
necessary to protect human, animal or plant life or health; or
(c)
necessary for the conservation of living or non-living
exhaustible natural resources.
NAFTA, supra note 18, art. 1106 ¶¶ 6(a)-(c) (emphasis supplied).
39
Id. art. 1106 ¶ 6 (emphasis supplied).
EAST\64724221. 326
addresses the application of measures, i.e., actions by the State in the
implementation and execution of its regulatory sovereignty, while the
second subordinate clause concerns “restriction[s]” on international trade
or investment, i.e., the effects of the subject measures.40
Paragraph six further broadens the State’s regulatory sovereignty
for purposes of adopting “environmental measures,” a broad and
unqualified term far exceeding the scope of the term “environmental”
within the meaning of paragraph two of the same article.41 Paragraph six,
subsection (b) explicitly references measures, “necessary to protect
human, animal or plant life or health,” which is identical language to the
GATT Article XX(b).42 Similarly, paragraph six, subsection (c), pertaining
to measures “necessary for the conservation of living or non-living
exhaustible natural resources,” also draws heavily on the GATT General
Exceptions.43
The categories of public purpose enunciated in paragraph six,
perhaps with the notable exception of “non-living exhaustible natural
resources,” fall into five (5) quite distinct categories: (i) human life or
health; (ii) animal, plant or health; (iii) plant life or health; (iv) living
exhaustible natural resources; and (v) environmental measures. These five
categories, having as their subject matter life, health, environment, and
exhaustible natural resources, likely represent a higher categorical status in
the hierarchy of a State’s priorities than the public purposes categories
40
The absence of any plain language referencing “international law” certainly detracts
from the proposition that the first part of this subsection aims at protecting foreign
investors and investments. Yet, the use of the words “arbitrary” and “unjustifiable,”
together with the overall construction of that subsection, certainly do not render the
proposition at all implausible. The NAFTA Chapter 11 drafters achieved the extremely
challenging objective of simultaneously addressing international trade and investment
law concepts and spheres of protection that are premised on different and often
competing underlying principles that in turn are expressed in disparate terms of art.
41
Article 1106(2) limits the scope of “environmental” to measures requiring investments
to use specific environmentally sensitive technologies:
A measure that requires an investment to use a technology to meet
generally applicable health, safety or environmental requirements shall
not be construed to be inconsistent with paragraph 1(f). For greater
certainty, Articles 1102 and 1103 apply to the measure.
NAFTA, supra note 18, art. 1106 ¶ 2.
42
See GATT, supra note 19, art. XX ¶ (b).
43
See id. art. XX ¶ (g) (“[R]elating to the conservation of exhaustible natural resources if
such measures are made effective in conjunction with restrictions on domestic production
or consumption.”).
EAST\64724221. 327
identified in Article 1105(3),44 or in Article 1106(4).45 The five categories
contained in Article 1106(6), however, are treated no differently, i.e., in
pari materia with such public purpose categories such as subsidies, grants,
the procurement of services or the training of workers, as set forth in
Articles 1105(3) and 1106(4), respectively.
All of these categories, indiscriminately, at least prima facie
provide a NAFTA Party with a normative foundation for exercising its
authority in ways that may be detrimental to investors or investments. This
NAFTA Chapter Eleven structural feature represents a policy that adopts a
broad understanding of public purpose, one that does not categorically
discern among public purpose constructs in connection with the extent
regulatory sovereignty based upon such a public purpose category must be
qualified. The general treatment of public purpose categories as equal in
every regard, without a need to qualify a State’s exercise of regulatory
sovereignty based upon any public purpose category, constitutes a material
deficit in the NAFTA Chapter’s rubric with respect to investor/investment
protection.46
Article 1108, entitled “Reservations and Exceptions,” perhaps best
exemplifies the multifarious nature of public purpose within a single
chapter of one treaty alone.47 It is also illustrative of the indiscriminate
44
Article 1105(3), read together with Article 1108(7)(b), exempts existing measures
relating to subsidies or grants by a Party or State enterprise from the Article 1105(2)
requirement of non-discriminatory treatment during armed conflict and civil strife.
NAFTA, supra note 18, art. 1105 ¶¶ 2-3; art. 1108 ¶ 7(b).
45
Article 1106(4) provides that the prohibition on conditioned advantages in Article
1106(3) “shall not be construed to prevent a Party from conditioning the receipt or
continued receipt of an advantage...on compliance with a requirement to locate
production, provide a service, train or employ workers, construct or expand particular
facilities, or carry out research and development, in its territory.” Id. art. 1106 ¶¶ 3-4.
46
This shortcoming, together with the uncertainty that the NAFTA “jurisprudence” has
spawned, comprise the most significant public purpose deficits within the NAFTA
investor protection system.
47
Article 1108 reads:
Article 1108: Reservations and Exceptions
(i)
Articles 1102 [National Treatment Standard], 1103[MostFavored Nation], 1106 [Performance Requirements] and 1107
[Senior Management, Boards of Directors] do not apply to:
(a) any existing non-conforming measure that is maintained
by
(i)
a Party at the federal level, as set out in its
Schedule to Annex I or III,
EAST\64724221. 328
(ii)
a State or province, for two years after the
date of entry into force of this Agreement,
and thereafter as set out by a Party in its
Schedule to Annex I in accordance with
paragraph 2, or
(iii)
a local government;
(b) the continuation or prompt renewal of any nonconforming measure referred to in subparagraph (a); or
(c) an amendment to any non-conforming measure referred to
in subparagraph (a) to the extent that the amendment does
not decrease the conformity of the measure, as it existed
immediately before the amendment, Articles 1102
[National Treatment Standard], 1103[Most-Favored
Nation], 1106 [Performance Requirements],and 1107
[Senior Management, Board of Directors].
(ii)
Each Party may set out in its Schedule to Annex I, within two
years of the date of entry into force of this Agreement, any
existing nonconforming measure maintained by a State or
province, not including a local government.
(iii)
Articles 1102 [National Treatment Standard], 1103[MostFavored Nation], 1106 [Performance Requirements],and 1107
[Senior Management, Board of Directors] do not apply to any
measure that a Party adopts or maintains with respect to
sectors, subsectors or activities, as set out in its Schedule to
Annex II.
(iv)
No Party may, under any measure adopted after the date of
entry into force of this Agreement and covered by its Schedule
to Annex II, require an investor of another Party, by reason of
its nationality, to sell or otherwise dispose of an investment
existing at the time the measure becomes effective.
(v)
Articles 1102 [National Treatment Standard] and 1103[MostFavored Nation] do not apply to any measure that is an
exception to, or derogation from, the obligations under Article
1703 (Intellectual Property-National Treatment) as specifically
provided for in that Article.
(vi)
Article 1103[Most-Favored Nation] does not apply to
treatment accorded by a Party pursuant to agreements, or with
respect to sectors, set out in its Schedule to Annex IV.
(vii)
Articles 1102 [National Treatment Standard], 1103[MostFavored Nation] and 1107 [Senior Management, Board of
Directors] do not apply to:
(a) procurement by a Party or a State enterprise; or
EAST\64724221. 329
cross-pollination between international investment law and international
trade law. All but three of the paragraphs comprising this Article explicitly
reference either national treatment standard and most-favored nation
treatment or one of these two treatment standards.48 Because Article 1108
addresses both reservations and exceptions, it is the most complex of the
Chapter Eleven NAFTA Articles.
A.
Public Purpose in the Context of Reservations
Reservations and exceptions represent two normatively related but
distinct sets of public purpose precepts that often encompass overlapping
categories. Reservations fall within the ambit of public purpose, at least
within the context of this contribution, because by definition they are the
product of the State’s exercise of regulatory sovereignty. Their normative
standing, and therefore their propriety as a juridically cognizable public
purpose, is founded on the procedural adherence to a legitimate
negotiation of a treaty forming part of international conventional law.
Consequently, the structure of a treaty reservation has an objective
grounding based upon process and in this sense it is universal and
commonly shared by all members of the community of nations. The
content of treaty reservations, however, is subjective. In contrast with its
formal process-driven structure, its substantive subject matter is particular
and hence, subjective. The subject matter arises from the unique needs of
States and is determined within a framework of orthodox Westphalian
(b) subsidies or grants provided by a Party or a State
enterprise, including government-supported loans,
guarantees and insurance.
(viii)
The provisions of:
(a) Article 1106[Performance Requirements](1)(a), (b)
and(c), and (3)(a) and (b) do not apply to qualification
requirements for goods or services with respect to export
promotion and foreign aid programs;
(b) Article 1106[Performance Requirements](1)(b), (c), (f)
and (g), and (3)(a) and (b) do not apply to procurement by
a Party or a State enterprise; and
(c) Article 1106[Performance Requirements](3)(a) and (b) do
not apply to requirements imposed by an importing Party
relating to the content of goods necessary to qualify for
preferential tariffs or preferential quotas.
NAFTA, supra note 18, art. 1108 (emphasis supplied).
48
See, e.g., id. art. 1108 ¶¶ 2, 4, 8.
EAST\64724221. 330
notions of sovereignty.49 Because of this duality, “treaty reservation
public purpose” cannot be analyzed together with public purpose
categories such as those constituting the NAFTA standard.50
Most of Article 1108 addresses the inapplicability of the national
treatment and most-favored nation standards to reservations.51 Paragraph
seven does carve out public purpose exceptions consonant with the
NAFTA public purpose standard that are not contained in the annexes to
the agreement and thus fall beyond the ambit of reservations.52 This
paragraph renders inapplicable national treatment and most-favored nation
standards to State-sponsored (i) subsidies, (ii) grants, (iii) loans, (iv)
guarantees, and (v) insurance. State procurement is also sanctioned as an
exception.53
49
Westphalian sovereignty refers to the Peace Treaty between the Holy Roman Emperor
and the King of France and their respective allies, October 24, 1648 (the “Treaty of
Westphalia”). While the Treaty of Westphalia indeed brought an end to the Thirty-Year
War, its most enduring legacy has been the treaty’s general discussion on the nature of
sovereignty, which provided the foundations for a territorially based conception that
accorded a virtual monopoly in international law to sovereign States. The writings of
Grotius and Leibniz together with the treaty’s text provided a framework for a rigid and
dogmatic conception of sovereignty that prevailed through the 20th century and is still
accepted in some quarters today. Pedro J. Martinez-Fraga, Juridical Convergence in
International Dispute Resolution: Developing A Substantive Principle of Transparency
and Transnational Evidence Gathering, 10 LOY. U. CHI. INT’L L. REV. 37, 38 n.3 (2012)
(citing J.G. STARKE, INTRODUCTION TO INTERNATIONAL LAW 7-14 (9th ed. 1984)).
50
What here has been identified as “treaty reservation public purpose” represents a right
to State action that may infringe upon fundamental rights of a foreign investor or
investment, which is substantively spawned by a State’s perceived needs. The “public
purpose” component of this right to act on the part of a State can be divorced completely
from such public purpose categories as health, education, orthodox regulatory State
prerogatives, childcare or income-security, and still enjoy binding juridical legitimacy.
Its subjective content derives from the exercise of the State’s political will which may or
may not coincide with the public purpose categories found in and suggested by the
NAFTA standard.
51
52
See, e.g., NAFTA, supra note 18, art. 1108 ¶¶ 1-6.
For example, Article 1108(7) provides:
7. Articles 1102, 1103 and 1107 do not apply to:
(a) procurement by a Party or a State enterprise; or
(b) subsidies or grants provided by a Party or a State
enterprise, including government-supported loans,
guarantees and insurance.
Id. art. 1108 ¶ 7.
53
The procurement exception is a common public purpose category traceable to the
GATT Article XX, subsections (i) and (j):
EAST\64724221. 331
The Article 1108 exceptions, construing paragraphs (a) and (b)
together, are more akin to public purpose exceptions deriving from the
State’s police powers, as their direct relationship to a common good of the
State is less clear than their parity with an activity of the State. The public
purpose found in the exercise of orthodox administrative authority
forming part of a State’s police powers are distinct from the public
purpose categories enunciated in Article 1106 paragraphs four (concerning
the training or employment of workers, construction or expansion of
facilities, and research and development) and six (pertaining to human,
animal, and plant life and health, and exhaustible natural resources). The
difference between the public purpose categories contained in Article
1108(7)(a)(b) and those mentioned in Article 1106(4), does not necessarily
suggest a hierarchical difference between the two sets of categories. Yet
both sets of exceptions (those of Article 1106(4) and Article 1108(7)),
would appear to be subordinated to the public purpose category of Article
1106(6) concerning life, health, and the conservation of exhaustible
resources. On the other hand, the Article 1108(7)(b) public purpose
categories conceptually comport best with the limited and qualified public
purpose categories of Article 1105(2).
Subject to the requirement that such measures are not applied in a
manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail, or
a disguised restriction on international trade, nothing in this Agreement
shall be construed to prevent the adoption or enforcement by any
contracting party of measures:
(i) involving restrictions on exports of domestic materials
necessary to ensure essential quantities of such materials
to a domestic processing industry during periods when the
domestic price of such materials is held below the world
price as part of a governmental stabilization plan;
Provided that such restrictions shall not operate to
increase the exports of or the protection afforded to such
domestic industry, and shall not depart from the
provisions of this Agreement relating to nondiscrimination;
(j) essential to the acquisition or distribution of products in
general or local short supply; Provided that any such
measures shall be consistent with the principle that all
contracting parties are entitled to an equitable share of
the international supply of such products, and that any
such measures, which are inconsistent with the other
provisions of the Agreement shall be discontinued as soon
as the conditions giving rise to them have ceased to
exist….
GATT, supra note 19, art. XX ¶ (i), (j).(emphasis supplied).
EAST\64724221. 332
The tension between exceptions and reservations that is present in
any effort that aspires to analyze public purpose in international law finds
fertile ground in Article 1108. The drafts of this article suggest that the
NAFTA Parties initially sought to categorize as “general exceptions”
many of the international trade law categories of exceptions that are
contained in the GATT’s Article XX.54 Most notably, Canada assumed a
protagonistic role in promoting these general exceptions that ultimately
were incorporated into the various annexes memorializing the
reservations.55 The proposed GATT-derived general exceptions amply
meet the NAFTA public purpose standard yet their expansive scope,
ranging from measures “necessary to protect public order, safety or public
morals” to decrees “imposed for the protection of national treasures of
artistic, historic, or archaeological,” would overwhelm the public purpose
doctrine rendering it all too general and encompassing for practical and
even analytical application. Here, the distinction between the public
54
For example, in the January 16, 1992, NAFTA Chapter 11 Draft, Canada proposed:
CDA
[Article 111: General Exceptions
Nothing in this Agreement shall be construed to prevent the adoption or
enforcement by any Party of measures:
(i)
necessary to protect public order, safety or public morals;
(ii)
necessary to protect human, animal or plant life or health or
the environment in its territory, or to enforce generally agreed
international environmental or conservation rules or standards;
(iii)
(iv)
(v)
(vi)
relating to the products or services of prison labor;
imposed for the protection of national treasures of artistic,
historic or archaeological value;
necessary for fiduciary or consumer protection reasons;
necessary to secure compliance with laws or regulations which
are not inconsistent with the provisions of this Agreement,
including those relating to the avoidance of fraudulent or deceptive
practices;
Provided that such measure is:
(vii)
(viii)
consistent with Article 106; and
is the least trade-restrictive necessary for securing the protection
required.]
NAFTA Negotiating Drafts, supra note 24, Draft of Jan. 16, 1992.
55
See, e.g., NAFTA, supra note 18, annex II (“Schedule of Canada”).
EAST\64724221. 333
purpose categories consonant with the NAFTA standard and “treaty
reservation public purpose” indeed is helpful in obtaining a more
comprehensive understanding of the public purpose doctrine and of its
functional application in international law, particularly with respect to
tempering foreign investor expectations, a State’s exercise of its regulatory
authority, meeting the aspirations of international investment law, and
maximizing international trade law efficacy.
Because treaty reservation public purpose is too subjective in
content and too general in scope, it serves the de facto function of limiting
the conceptual universe of the NAFTA public purpose standard
exceptions. This categorical segregation in turn renders plausible
meaningful analysis concerning possible public purpose exceptions
without creating an unworkable criteria that is weak on discriminating
among practices falling within the public purpose doctrine. Despite
Canada’s laudable intent to have broad and all-encompassing public
purpose exceptions pervade Chapter Eleven, the final iteration of Article
1108—limiting public purpose to (i) procurement, (ii) subsidies, (iii)
grants, (iv) government supported loans, (v) government supported
guarantees, and (vi) government supported insurance—actually furthers
the plight of public purpose. In addition, narrowing the scope of public
purpose exceptions helps serve the conceptual interests of international
investment law without drawing on a doctrinal reservoir of public purpose
constituted by terms and categories of both international trade and
international investment law.56
The single reference to the nomenclature “public purpose” in
Chapter Eleven is found in Article 1110(1)(a).57 The term appears as one
of four elements that give rise to a legal expropriation where all four tenets
56
The Article 111: General Exceptions draft is illustrative on this point. Supra note 56.
That draft article included such public purpose categories as “the products or services of
prison labor,” and measures “necessary for fiduciary or consumer protection reasons.”
Even though the public purpose component to these categories is eminently clear, the
categories do not have their origins in, nor do they form part of, international investment
law. To the contrary, they are categories consistently associated with international trade
law. Because their origin is disassociated from the law and principles governing the
protection of aliens, the doctrinal development and application of these concepts suggest
that their highest and best use is within a framework that pertains to macroeconomic
regulation over significant time frames and not the short to medium term microeconomic
issues more common to international investment law and treaty based arbitrations. See
generally, Nicholas DiMascio & Joost Pauwelyn, Nondiscrimination in Trade and
Investment Treaties: Worlds Apart or Two Sides of the Same Coin?, 102 A.J.I.L. 48
(January 2008).
57
NAFTA, supra note 18, art. 1110 ¶ 1(a).
EAST\64724221. 334
are met.58 While the NAFTA standard engrafts conceptual and practical
meaning to the term public purpose, Article 1110 nowhere defines it.
Moreover, the drafts of Chapter Eleven suggest that the NAFTA Parties
expressed no concern over defining public purpose within the confines of
this article. Instead, the drafts reflect that the NAFTA Parties at the time
had divergent views on the issue of compensation with the United States
and Canada agreeing on a specific and discernible standard consonant with
established principles of compensation found in public international law,
and Mexico expressing a penchant for a domestic criteria.59 The
58
The Article, which identifies public purpose as the first of four tenets that if
collectively met, legalize direct or indirect nationalization or expropriation, provides no
guidance as to the meaning of public purpose or its hierarchical relationship as to the
three remaining tenets comprising subsections (b) through (d). Id. art. 1110 ¶ 1.
59
By way of example, the February 13, 1992 draft of
expropriation and compensation States:
1.
2.
Article 1110 concerning
No Party shall directly or indirectly nationalize or expropriate an
investment of an investor of another Party in its territory or take
any measure or series of measures tantamount to expropriation
USA, CDA
[or nationalization] or such an investment USA CDA
[(“expropriation”)], except:
(a)
for a public purpose;
(b)
on a nondiscriminatory basis;
(c)
in accordance with due process of law USA
[and the general principles of treatment
provided for in Article ----]; and
(d)
upon payment of USA, CDA [prompt, adequate
and effective] compensation.
Compensation shall be MEX [paid within a reasonable period of
time] USA CDA [equivalent to the fair market value of the
expropriated investment immediately before the expropriatory
action was taken or became known, whichever is earlier; be paid
without delay; include interest at a commercially reasonable
rate from the date of expropriation; be fully realizable; and be
freely transferable at the prevailing market rate of exchange on
the date of USA [expropriation]. CDA [transfer.] ]
NAFTA Negotiating Drafts, supra note 24, Draft of Feb. 13, 1992 (emphasis in
original).The differences between the Parties on this issue become all the more stark,
with Mexico underscoring its rejection of the U.S. and Canada’s adherence to public
international law principles with respect to compensation for indirect or direct
nationalizations or expropriations of another Party’s investment:
EXPROPRIATION AND COMPENSATION
1.
No Party shall directly or indirectly nationalize or expropriate
an investment of an investor of another Party in its territory or
EAST\64724221. 335
discrepancy among the NAFTA Parties on the question of compensation
perhaps finds foundation in Mexico’s status as the NAFTA Party most
likely to be classified as a “capital-importing State.”
The extent to which the public purpose doctrine in its legacy form
affects compensation in the context of direct or indirect expropriations or
nationalizations should not be altogether severed from the often disparate
treatment of public purpose between capital-exporting and capitalimporting States.60 Understandably, in the context of Chapter Eleven, the
take any measure or series of measures tantamount to
expropriation or nationalization of such an investment
(“expropriation”), except:
2.
(a)
for a public purpose;
(b)
on a nondiscriminatory basis;
(c)
in accordance with due process of law USA [and the
general principles of treatment provided for in
Article ----]; and
(d)
upon payment of USA CDA [prompt, adequate and
effective] compensation.
Compensation shall be equivalent to the fair market value of
the expropriated investment immediately before the
expropriatory action was taken or became known, whichever
is earlier. Valuation criteria shall include going concern value,
asset value (including declared tax value of tangible property),
and other criteria, as appropriate to determine fair market
value. Compensation shall be paid without delay; include
interest at a commercially reasonable rate from the date of
expropriation; be fully realizable; and be freely transferable at
the prevailing market rate of exchange on the date of USA
[expropriation.] MEX CDA [transfer].
Mexican Note 2 – Mexico considers that the concerns expressed by
the U.S. and Canada delegations on compensation are covered by
the new draft proposal on paragraph 2. On that basis Mexico will
only accept this paragraph if the U.S. and Canada delegations drop
the actual bracketed text in paragraph 1(c) and (d).
Id. (emphasis in original).
60
See, e.g., Professor Alan C. Swan, NAFTA Chapter 11-”Direct Effect” and Interpretive
Method: Lessons from Methanex v. United States, 64 U. MIAMI L. REV. 21, 85 (2009)
(“[C]apital-exporting countries promoted a strong legal tradition, both international and
domestic, of requiring the government to pay full compensation to the owner. While the
international version of that requirement was challenged particularly by the
underdeveloped countries in the United Nations General Assembly, it nevertheless
seemed to retain its vitality among the various tribunals that were from time to time
called to pass on the issue. It was against this background that the underdeveloped
EAST\64724221. 336
NAFTA Parties elected to negotiate aggressively and comprehensively the
question of compensation within the framework of Article 1110 instead of
engaging in the more challenging and, from a pragmatic treaty negotiation
perspective, less viable endeavor of “defining” (literally crafting limits on)
the public purpose doctrine, which already received considerable attention,
albeit without being overtly saddled with the “public purpose”
nomenclature, in Article 1101(4).61
Article 1114 addressing “environmental concerns” comports with
the NAFTA standard.62 While at first glance this public purpose
“environmental exception” may appear to be, from a public purpose
categorical classification perspective, duplicative of the general reference
to “environmental measures” in Article 1106(6), the phrase “sensitive to
environmental concerns” appears to suggest an even broader scope. This
amplified categorical construction is further bolstered by the participles
“adopting, maintaining or enforcing” any measure presumably deemed to
be “sensitive to environmental concerns.”63 This observation
notwithstanding, paragraph two of Article 1114 does suggest a new
environmental public purpose different from the general category
contained in Article 1106(6).
countries increasingly found it in their interests to use regulatory intervention, rather than
an outright “taking,” to achieve their purposes.”).
61
The Article 1101 drafts do not contain any permutations of the term “public purpose,”
nor do they even mention public purpose.
62
This Article reads:
1.
2.
Nothing in this Chapter shall be construed to prevent a Party from
adopting, maintaining or enforcing any measure otherwise
consistent with this Chapter that it considers appropriate to ensure
that investment activity in its territory is undertaken in a manner
sensitive to environmental concerns.
The Parties recognize that it is inappropriate to encourage
investment by relaxing domestic health, safety or environmental
measures. Accordingly, a Party should not waive or otherwise
derogate from, or offer to waive or otherwise derogate from, such
measures as an encouragement for the establishment, acquisition,
expansion or retention in its territory of an investment of an
investor. If a Party considers that another Party has offered such an
encouragement, it may request consultations with the other Party
and the two Parties shall consult with a view to avoiding any such
encouragement.
Id. art. 1114.
63
Id. art. 1114 ¶ 1.
EAST\64724221. 337
Paragraph two of Article 1114 proscribes conduct that encourages
investment “by relaxing domestic health, safety or environmental
measures.”64 This provision constitutes a measure directed at foreclosing
pollution havens. The Canadian Statement of Implementation of Chapter
Eleven corroborates this interpretation of the public purpose category
enunciated in Article 1114.65
The NAFTA Chapter Eleven contribution to public purpose is
significant. In addition to fashioning what is here regarded as a public
purpose standard,66 it also categorically enriched the public purpose
doctrine by listing fifteen (15) identifiable public purpose categories
pursuant to which State action may adversely compromise a foreign
investor or an investment without incurring liability:
(i)
(ii)
human life and health; 67
animal life and health;68
64
Id. art. 1114 ¶ 2.
65
For example, the Canadian Statement on Implementation in part provides:
The first paragraph of article 1114 affirms each Party’s right to adopt
and enforce environmental measures, consistent with the chapter (e.g.,
environmental measures must be applied on a national treatment basis).
The second paragraph, which addresses the pollution haven issue,
requires that the Parties recognize that it is inappropriate to encourage
investment by relaxing domestic health, safety or environmental
measures, and that Parties should not waive or derogate from such
environmental measures to attract investment. If one Party considers
that another has done so, it may request consultations.
Canadian Statement on Implementation, supra note 26, at 152.
66
The Article 1101(4) construct that has been identified as a “public purpose standard,”
lists ten (10) public purpose categories that are not exhaustive but rather to be used as a
paradigm against which actions on the part of the State that purport to be of a public
purpose nature may be challenged and/or identified:
(i) law enforcement,
(ii) correctional services,
(iii) income security,
(iv) insurance,
(v) social security,
(vi) social welfare,
(vii) public education,
(viii) public training,
(ix) healthcare,
(x) childcare.
NAFTA, supra note 18, art. 1101 ¶ 4.
67
See, e.g., id. art. 1106 ¶ 6(b).
EAST\64724221. 338
plant life and health;69
living and non-living exhaustible resources;70
general environmental;71
modification to technology to meet health requirements;72
modification to technology to meet safety requirements;73
modification to technology to meet environmental
requirements;74
(ix)
subsidies directed at investments affected by civil strife or
armed conflict;75
(x)
grants directed to investments affected by armed conflict;76
(xi)
government supported loans;77
(xii) government supported guarantees;78
(xiii) government supported insurance;79
(xiv) government grants generally; and80
(xv) measures to proscribe the creation of future pollution
havens.81
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
This contribution to the public purpose doctrine demonstrates a serious
and sustained effort aspiring to develop a functioning public purpose
standard. The NAFTA Chapter Eleven public purpose experiment is a
successful one. The chapter studiously balances public purpose categories
within the ambit of the NAFTA standard and public purpose treaty
68
Id.
69
Id.
70
Id. art. 1106 ¶ 6(c).
71
Id. art. 1106 ¶ 6.
72
Id. art. 1106 ¶ 2.
73
Id.
74
Id.
75
Id. art. 1103 ¶ 2.
76
Id.
77
Id. art. 1108 ¶ 7(b).
78
Id.
79
Id.
80
Id.
81
Id. art. 1114.
EAST\64724221. 339
reservations. Even more significantly, Article 1101(4) sets a tone that
seeks to impose limits on the public purpose doctrine so that it may serve a
practical function. This effort, however, hardly brings us closer to
understanding the doctrine of public purpose in international law beyond
merely a “catch-all” phrase attaching to all matters reasonably related to a
sovereign’s exercise of sovereignty, i.e., to all things public in a State.
B.
Chapter Eleven of The NAFTA Does Not Develop an Objective
Test
The orthodox conception and treatment of public purpose is not
workable in large measure because it is grounded on a subjective
normative framework.82 This subjective configuration necessarily leads to
uncertainty, lack of uniformity, and lends itself to “justifiable abuse.” The
relative nature of the legacy public purpose doctrine in international law is
particularly dysfunctional and conceptually at odds in the context of
economic globalization and shifting paradigms concerning the related
doctrine of sovereignty. Chapter Eleven of the NAFTA vests the doctrine
with the requisite objective foundation. To be sure, while what here has
been identified as the “NAFTA Standard” does not remove public purpose
from the realm of absolute subjectivity and relativism, it does set forth
subject matter based categories that serve as a first step towards limiting
the doctrine from a substantive content perspective. Still, however, when
addressing complex issues, primarily in the regulatory sphere, the
objective deficit and lack of doctrinal development necessarily surface.
This difficulty is compounded by the unique status that the public purpose
doctrine holds in determining the legality of expropriations and even
nationalizations under public international law.83 The challenge is equally
82
See RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 712 cmt. e (1987) (“The
requirement that a taking be for a public purpose is reiterated in most formulations of the
rules of international law on expropriation of foreign property. That limitation, however,
has not figured prominently in international claims practice, perhaps because the concept
of public purpose is broad and not subject to effective reexamination by other States.”);
see also Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 458 (1964) (“Of course,
there are many unsettled areas of international law, as there are of domestic law, and
these areas present sensitive problems of accommodating the interests of nations that
subscribe to divergent economic and political systems. It may be that certain
nationalizations of property for a public purpose fall within this area.”).
83
A functional public purpose doctrine should and must account for differences between
expropriation and nationalization. The policies underlying expropriations are less
dependent on “matters of State” and closer to identifiable concerns having a public
character than those policies framing sector based nationalizations. See, e.g., United
Nations Conference on Trade & Development, Expropriation: UNCTAD Series on Issues
in International Investment Agreements II, U.N. Doc. UNCTAD/DIAE/IA/2011/7, U.N.
Sales No. E.12.II.D.7 (2011) (“Nationalization usually refers to massive or large-scale
takings of private property in all economic sectors or on an industry – or sector-specific
basis. Outright nationalizations in all economic sectors are generally motivated by policy
EAST\64724221. 340
exacerbated in the effort to harmonize the public purpose doctrine’s
regulatory sovereignty enhancing features with the sovereignty restricting
effects of international human rights.
The drafts and working papers pertaining to Chapter Eleven are
unavailing in the effort to develop a public purpose doctrine having an
objectively discernable content. The NAFTA Parties, while concerned
with public purpose, soon realized that the proliferation of public purpose
categories in the treaty’s actual text would further dilute the protection to
be accorded to investors and investments. A proliferation of public
purpose categories, in addition to treaty reservations, would emphasize the
lack of investor protection policies underlying the chapter and completely
distort the measured temperance that is to characterize the relationship
between investment protection and the State’s regulatory authority or
regulatory sovereignty.84 Despite the development of the NAFTA
Standard, Chapter Eleven does not remedy the subjective content ill that
plagues the orthodox public purpose doctrine. It also fails to cure the ills
arising from the accepted practice of according deference in defining what
is public purpose to the invoking State.
C.
Public Purpose in the NAFTA Lacks Hierarchical Structure
The NAFTA’s Chapter Eleven framework is rich with emphasis on
the fifteen public purpose categories identified. Assuming a “rule of
reason” approach—the extent to which a State’s regulatory measure is
akin to or may derive from any of these categories—the evaluation of
whether a particular measure constitutes a public purpose category within
the NAFTA Standard would be considerably facilitated. This approach,
however, assumes that the universe of public purpose categories that
reasonably relate to the NAFTA Standard share an equal status or
hierarchy for purposes of furthering the common good. This assumption is
unreliable. Concerns pertaining to public health and safety likely outweigh
administrative public purpose categories such as government supported
guarantees. Similarly, as discussed in the context of international human
rights, not all rights are, or can be considered to be equal from a regulatory
perspective.85 By way of example, can the human right to be free from
considerations; the measures are intended to achieve complete State control of the
economy and involve the takeover of all privately owned means of production.”)
84
The Chapter 11 drafts do not overtly State the reasons why public purpose categories
first identified as general exceptions were later regarded as reservations contained in the
annexes. Close scrutiny of the texts (drafts), particularly between December 1, 1991 and
March 23, 1993, does support the proposition that the NAFTA policy seeking to
maximize the effect of international trade law while providing for a comprehensive
investor protection rubric was best furthered by the exceptions methodology that typifies
Article 1101(4) and that avails itself of broad but limited public purpose categories.
85
See infra at Chapter 3.
EAST\64724221. 341
slavery be considered the same from a regulatory perspective as the right
to freedom of assembly?86 Similarly, the human right to humane treatment
or the rights of children cannot be deemed susceptible to the same degree,
if any, of regulatory sovereignty as freedom of movement nationally and
internationally. The presence of a hierarchy in international human rights
principles and norms is evident and established. The same cannot be said
for the multiple iterations of the public purpose doctrine.
Chapter Eleven does not at all emphasize some public purpose
categories over others. A system that relies on a public purpose doctrine to
determine the juridical standing of an expropriation or a nationalization
cannot rest on a conception of public purpose that lacks objective content
and categorical hierarchy.
D.
The Chapter Eleven Framework Indiscriminately Incorporates
and Comingles Terms of Art from the GATT: An Unwanted
Cross-Pollenization
Chapter Eleven of the NAFTA fashions public purpose categories
drawn from international trade law, even though this chapter
fundamentally applies to “investment, services and related matters.”87 In
broad strokes, the chapter’s architecture speaks to three objectives.
First, it identifies treatment standards for investor and investment
protection.88 Second, exceptions in the form of public purpose categories
and public purpose treaty reservations earmarked to protect regulatory
sovereignty are carved out.89 Third, Chapter Eleven sets forth an
international dispute resolution methodology.90 Accordingly, the chapter
aspires to harmonize investment law with the underlying policies and
objectives of international trade law, even though it nowhere explicitly
States so. In so doing, general exceptions pertaining to international trade
law are introduced into Chapter Eleven and provided with “public purpose
category status.” As noted, verbatim subparagraphs from the GATT’s
Article XX general exceptions are transposed into Chapter Eleven and
86
See id.
87
NAFTA, supra note 18, art. 1101 ¶ 1 (emphasis supplied).
88
Id. art. 1102 (National Treatment); art. 1103 (Most-Favored Nation Treatment); art.
1104 (Standard of Treatment); art. 1105 (Minimum Standard of Treatment); and art. 1110
¶ 1 (Expropriation & Compensation).
89
Id. art. 1101 ¶ 4; art. 1106 ¶¶ 2, 4, 6(a)-(c); art. 1108; art. 1114.
90
See, e.g., id. art. 1117-38.
EAST\64724221. 342
presented as exceptions and not reservations.91 This cross-fertilization
does more than comingle terms of art that have different origins and seek
disparate objectives that are often in conflict.
The introduction of international trade law terms into investment
protection instruments is not unique to the NAFTA’s Chapter Eleven. A
number of second-generation bilateral investment treaties, particularly
those in which Canada is a party and generally acting as the capital
exporting country to the treaty, have incorporated international trade law
terms of art, mostly from the GATT’s Article XX General Exceptions.92
91
See supra note 35 & accompanying text.
92
Among the Canadian bilateral investment treaties (called “Foreign Investment
Promotion and Protection Agreements” or “FIPAs”) that include such protections are
those entered into with the following:
(i)
Armenia (signed May 8, 1997) (protection for “human, animal
or plant life or health,” “environmental” measures, and “the
conservation of living or non-living exhaustible natural
resources if such measures are made effective in conjunction
with restrictions on domestic production or consumption.”);
(ii)
Barbados (signed May 29, 1997) (including “environmental
protection,” the protection of “human, animal or plant life or
health,” and “the conservation of living or non-living
exhaustible natural resources.”);
(iii)
Costa Rica (signed May 18, 1998) (including the protection of
“human, animal or plant life or health,” the “conservation of
living or non-living exhaustible natural resources, if such
measures are made effective in conjunction with restrictions
on domestic production or consumption,” “the protection of
investors, depositors, financial market participants, policy
holders, policy claimants, or persons to whom a fiduciary is
owed by a financial institution,” and the “maintenance of the
safety, soundness, integrity or financial responsibility or
financial institutions.”);
(iv)
Croatia (signed January 30, 2001) (including “any current or
future foreign aid program to promote economic development,
whether under a bilateral agreement or pursuant to a
multilateral arrangement or agreement, such as the OECD
Agreement on Export Credits,” the protection of “human,
animal or plant life or health,” “the conservation of living or
non-living exhaustible natural resources if such measures are
made effective in conjunction with restrictions on domestic
production or consumption,” “the production, distribution, sale
or exhibition of film or video recordings.”);
(v)
Czech Republic (entered into force January 22, 2012)
(including the protection of “human, animal or plant life or
health,” “the conservation of living or non-living exhaustible
natural resources,” “the protection of investors, depositors,
EAST\64724221. 343
Several other States have also incorporated such provisions into their
investment protection regimes.93
financial market participants, policy holders, policy claimants,
or persons to whom a fiduciary is owed by a financial
institution,” and “ensuring the integrity and stability of a
Contracting Party’s financial system.”);
(vi)
Ecuador (signed April 29, 1996) (including the protection of
“human, animal or plant life or health,” and measures
concerning “the conservation of living or non-living
exhaustible natural resources.”); and
(vii)
Egypt (signed November 13, 1996) (including measures
necessary to protect “human, animal or plant life or health,”
and acts “relating to “the conservation of living or non-living
exhaustible natural resources if such measures are made
effective in conjunction with restrictions on domestic
production or consumption.”).
93
The role of the public purpose doctrine in BITs is explored in Chapter 4. For nonCanadian bilateral investment treaties including these protections, see the following nonexhaustive listing:
1.
Bilateral Agreement for the Promotion and Protection of
Investments Between the Government of the Republic of Colombia
and the Government of the Republic of China, Colom.-Chi, Nov.
22,
2008,
http://unctad.org/sections/dite/iia/docs/bits/colombia_china.pdf
(including the preservation of “public order”) [hereinafter
Colombia-China BIT];
2.
Agreement for the Promotion and Protection of Investments
Between the Republic of Colombia and the Republic of India,
Colom.-Ind.,
Nov.
10,
2009,
http://unctad.org/sections/dite/iia/docs/bits/colombia_india.pdf
(including “public order,” “human, animal, plant life or health,”
“the protection of the environment or the conservation of
exhaustible natural resources,” and “pursuance of obligations
under the United Nations Charter for the Maintenance of
International Peace and Security.”) [hereinafter Colombia-India
BIT].
3.
United States-Colombia Trade Promotion Agreement, Chapter 10
(Investment), Nov. 22, 2006, http://www.ustr.gov/tradeagreements/free-trade-agreements/colombia-fta/final-text
(including “environmental measures,” the protection of “human,
animal, or plant life or health,” and “conservation of living or nonliving exhaustible natural resources.”) [hereinafter US-Colombia
TPA];
4.
Republic of Korea-United States Free Trade Agreement, Chapter
11 (Investment), Jun. 30, 2007, http://www.ustr.gov/tradeagreements/free-trade-agreements/korus-fta/final-text (including
EAST\64724221. 344
the protection of “human, animal, or plant life or health,” and “the
conservation of living or non-living exhaustible natural
resources.”) [hereinafter US-South Korea FTA];
5.
Agreement between the Government of the Republic of Korea and
the Government of Japan for the Liberalisation, Promotion and
Protection of Investment, Kor.-Jap., entered into force Jan. 1, 2003,
http://unctad.org/sections/dite/iia/docs/bits/korea_japan.pdf
(including the protection of “essential security interests,”
“pursuance of its obligations under the United Nations Charter for
the Maintenance of International Peace and Security,” the
protection of “human, animal or plant life or health,” and “the
maintenance of public order.”) [hereinafter South Korea-Japan
BIT];
6.
Agreement Between Canada and the Republic of Peru for the
Promotion and Protection of Investments, Can.-Peru, Nov. 14,
2006, http://unctad.org/sections/dite/iia/docs/bits/canada_peru.pdf
(including the protection of “human, animal or plant life or health,”
the protection of “public morals or to maintain public order,” “the
prevention of deceptive and fraudulent practices or to deal with the
effects of a default on contract,” “the protection of the privacy of
the individual in relation to the processing and dissemination of
personal data and the protection of confidentiality of personal
records and accounts,” the protection of “national treasures of
artistic, historic or archaeological value,” and the “pursuance of its
obligations under the United Nations Charter for the Maintenance
of International Peace and Security.”) [hereinafter Canada-Peru
BIT];
7.
Panama-United States Trade Promotion Agreement, June 28, 2007,
http://www.ustr.gov/trade-agreements/free-tradeagreements/panama-tpa/final-text (including the protection of
“environmental measures,” the protection of “human, animal or
plant life or health,” and the conservation of “living or non-living
exhaustible natural resources.”);
8.
Free Trade Agreement between the Republic of China (“Taiwan”)
and the Republic of Panama, Tai.-Pan., Mar. 26, 1992,
http://www.sice.oas.org/Investment/BITSbyCountry/BITs/PAN_T
W_s.pdf (including the protection of “environmental measures,”
the protection of “human, animal or plant life or health,” and the
conservation of “living or non-living exhaustible natural
resources.”);
9.
Australia-Thailand Free Trade Agreement, Aus.-Tha., entered into
force Jan. 1, 2005, http://www.dfat.gov.au/fta/tafta/austhai_FTA_text.pdf (including the following language: “1. For the
purposes of Chapters 2 – 7, Article XX of GATT 1994 is
incorporated into and made part of this Agreement, mutatis
mutandis. 2. For purposes of Chapters 8 – 10, Article XIV of
GATS is incorporated into and made part of this Agreement,
mutatis mutandis. 3. Article XX (e) – (g) of GATT 1994 is
incorporated into and made part of Chapter 9, mutatis mutandis.”);
and
EAST\64724221. 345
The effect of this doctrinal confluence has more than just
theoretical consequences. Conditioning what at first may appear to be
orthodox public policy categories on trade law principles, such as
“restrictions on domestic production or consumption” or “ensuring the
integrity and soundness of financial institutions,” which are far removed
from the objectives of international investment protection law,
unconditionally and unjustifiably amplifies the State’s regulatory
authority. To the extent that this broadening of the scope of the State’s
regulatory sovereignty takes place, investor and investment protection is
significantly diminished. Furthermore, because of the quite tenuous
connection between international trade law precepts and the fundamental
protection principles of investment law, uncertainty, lack of predictive
value, and considerable want of uniformity ensue. The consequence is to
provide Host States with a virtually unbridled license to regulate foreign
investments in ways that could not have been reasonably foreseeable.94
Chapter Eleven of the NAFTA is distinct from other chapters of
the treaty in that its purpose is to attract “foreign investment” among the
NAFTA Parties primarily by ensuring the twin goals of (i) providing
foreign investors with a super-national arbitral forum in which to resolve
disputes, and (ii) protecting “foreign investment” among the NAFTA
Parties. The challenge in executing these objectives within the matrix of a
trade agreement is to fashion a public purpose rubric that harmonizes
different and even inimical principles and objectives of international
investment and trade law. This theoretical and functional aspiration is
frustrated where States are granted, under the guise of a legitimate public
purpose, a license to regulate and compromise foreign investment
protection in ways that are detrimental both to the investments and
investors.95 Indeed, in the event of any inconsistency between Chapter
10. Australia-Singapore Free Trade Agreement, Aus.-Sin., Feb. 17,
2003, http://www.dfat.gov.au/fta/safta/index.html (including the
protection of “public morals” and “public order,” as well as
“human, animal or plant life or health,” “the prevention of
deceptive and fraudulent practices or to deal with the effects of a
default on a contract,” “the protection of the privacy of individuals
in relation to the processing and dissemination of personal data and
the protection of confidentiality of individual records and
accounts.”).
94
See, e.g., Andrew Newcombe, The Boundaries of Regulatory Expropriation in
International Law, 20:1 ICSID REV. 1, 23 (2005) (“Moreover, arbitral tribunals also share
this view and have held that parties are ‘not liable for economic injury that is the
consequence of bona fide regulation within the accepted police powers of the State.’
While this abstract principle is said to be ‘indisputable’ its application is anything but
clear.”) (internal citations omitted).
95
Without purporting to draw a necessary and apodictic connection between this
distortion of public purpose caused by the indiscriminate wholesale importation of
EAST\64724221. 346
Eleven of the NAFTA—the single investment and investor protection
chapter in the treaty that also provides for international dispute
resolution—and any other NAFTA chapter, it is the latter (the trade and
not the investment chapter) that is to prevail.96 The NAFTA Parties were
acutely aware that Chapter Eleven and its investment protection rubric was
to be subordinated to all other NAFTA trade related articles.97 In this
sense, investment law policies are but a stepchild to the overarching trade
policies permeating the treaty’s architecture.
E.
The NAFTA Standard Public Purpose Exceptions and the
Treaty Reservation Public Purpose Category: Harmonizing a
Dichotomy
Even though public purpose reservations in international treaties
are rightfully construed as singular or particular categories that result as a
process of diplomatic negotiations,98 the question lingers as to whether
and the extent to which they inevitably may constitute general categories
of customary international law.99 Often, conventional international law
results from the codification of principles found in customary international
law. The less common but still viable methodology of fashioning
customary international law based upon principles of international
international trade law principles into the positive law and consequently the
“jurisprudence” of investment law, it still remains paramount to underscore that as of this
writing a NAFTA Chapter 11 claimant only has prevailed once in a NAFTA treaty-based
arbitration. See Metalclad Corp. v. United Mexican States, ICSID Case No. ARB
(AF)/97/1, Award (Aug. 30, 2000), 5 ICSID Rep. 212 (2002) [Hereinafter Metalclad].
96
See Article 1112(1): Relation to Other Chapters, which provides: “In the event of any
inconsistency between this Chapter and another Chapter, the other Chapter shall prevail
to the extent of the inconsistency.” NAFTA, supra note 18, art. 1112 ¶ 1.
97
See, e.g., Canadian Statement on Implementation, supra note 26, at 152 (“In the case of
any inconsistency between the investment chapter and other chapters, article 1112
provides that the latter shall prevail to the extent of the inconsistency. This article ensures
that the specific provisions of other chapters are not superseded by the general provisions
of this chapter.”)
98
See RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 313 cmt. d (1987) (“A
reservation, an express acceptance of a reservation, or an objection to a reservation, must
be formulated in writing and communicated to the contracting States and other States
entitled to become parties to the agreement.”)
99
General reservations may result from a sovereign’s explicit adoption of customary
international law principles. This proposition, however, does not preclude the negotiation
of reservations precisely because they do not appear in international customary law. It is
this latter universe of general reservations that are disconcerting with respect to the
likelihood of having such reservations eventually populate the realm of customary
international law.
EAST\64724221. 347
conventional law is a phenomenon that has been amply chronicled.100 The
customary practice of interpreting reservations as having an objective
structure but a subjective content arising from the particular needs of
States and the treaty negotiation process simply cannot be relied upon to
ensure that recurring reservations, often hidden under the banner of
“public safety and protection,” will not form part of a collective
international law consciousness.101
While the elements of customary international law102 certainly do
bestow normative legitimacy on the principles that constitute it, and to this
extent serve to enhance substantive and process legitimacy, the
consequence necessarily leads to still a broader conception of public
policy exceptions that distorts the workings of international investment
law. Moreover, the orthodox legacy conceptualization of the public
purpose doctrine is based upon a subjective analysis rendered legitimate
by dint of State pronouncement enjoying minimum process.103 Legitimacy
100
See Gary L. Scott & Craig L. Carr, Multilateral Treaties and the Formation of
Customary International Law, 25 DENV. J. INT’L L. & POL’Y 71, 72 (1996) (Arguing that
“those parts of multilateral treaties which are generalizable beyond the particulars of the
treaty can serve as a source of customary international law provided three basic
conditions are met: 1) The treaty is accepted by a sufficient number of States in the
international system. 2) Among the parties to the treaty there are a significant number of
those States whose interests are most affected by the treaty. 3) The treaty provisions are
not subject to reservations by the accepting parties.”); see also Lt. Colonel Vincent A.
Jordan, Creation of Customary International Law By Way of Treaty, 9 A.F. L. REV. 38
(1967).
101
For example, in Annexes I-III, each of the three NAFTA Parties provided a Schedule
pertaining to “Reservations for Existing Measures and Liberalization Commitments.”
NAFTA, supra note 18, annexes I-III. In these annexes, each Party delineated certain
domestic legislation to be deemed inapplicable in evaluating the treatment to be accorded
to investors of another NAFTA Party, including the duties placed upon a Host State
under Article 1102’s National Treatment Standard. Notably, one of the reservation
chapters, Annex III “Activities Reserved to the State,” only includes a Schedule of
Reservations for Mexico, in which Mexico specified certain industries—Petroleum,
Electricity, Nuclear Power, etc.—that it reserved the right to perform exclusively and “to
refuse to permit the establishment of investments.” Id. annex III.
102
Arthur M. Weisburd, Customary International Law: The Problem of Treaties, 21
VAND. J. TRANSNAT’L L. 1, 6 (1988) (“The fact which one must constantly keep in mind
with respect to rules of customary international law is that proving the existence of such
rules requires proof of two elements: first, the general practice of States must reflect the
rule (the generality requirement); and second, States must follow the rule in the belief
that such a course is legally required (the opinio juris sive necessitatis requirement).”)
(citing IAN BROWNLIE, PRINCIPLES OF PUBLIC INTERNATIONAL LAW 7-9 (3d ed. 1979)).
103
Reservation exceptions constitute binding conventional law. They do not, however,
arise from a political process akin to the enactment of domestic legislation. See, e.g.,
Edward T. Swaine, Reserving, 31 YALE J. INT’L L. 307, 319 (2006) (“[I]f a non-reserving
State accepts another State’s reservation, it modifies the relevant treaty provisions for
them both. If, on the other hand, a non-reserving State objects—without specifically
denying the reserving party’s status as a party—’the provisions to which the reservation
EAST\64724221. 348
is solely grounded on the authority of the State to negotiate a space for its
political will to express itself irrespective of the effects that it may have on
foreign investments. The ratification of the treaty provides for the requisite
consent that engrafts the final imprimatur of juridical legitimacy and
normative standing.104 Transitioning from a treaty reservation public
purpose to a commonly recognized general principle of public purpose is
both plausible and virtually inevitable.105 Content scrutiny would then be
minimal because the validating normative predicate—in the first instance
a State pronouncement, and in the second a common State pronouncement
that is recurring and consonant with customary international law process
legitimacy—would prevail particularly in connection with a doctrine that
is almost exclusively based upon a subjective content.
The transposition of general reservations contained in international
conventional law to principles of international customary law likely to be
categorized as public purpose precepts indiscriminately applicable to
international trade and investment law is more than a theoretical construct.
relates do not apply as between the two States to the extent of the reservation.’”) (citing
Vienna Convention on the Law of Treaties art. 21, May 23, 1969, 1155 U.N.T.S. 331.
[hereinafter VCLT]).
104
See VCLT, supra note 105, art. 14 ¶ 1 (“The consent of a State to be bound by a treaty
is expressed by ratification when: (a) the treaty provides for such consent to be expressed
by means of ratification; (b) it is otherwise established that the negotiating States were
agreed that ratification should be required; (c) the representative of the State has signed
the treaty subject to ratification; or (d) the intention of the State to sign the treaty subject
to ratification appears from the full powers of its representative or was expressed during
the negotiation.”); see also RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 312
cmt. d (1987) (“A State can be bound upon signature, but that has now become unusual
as regards important formal agreements. For such agreements, signature is normally ad
referendum, i.e., subject to later ratification, and has no binding effect but is deemed to
represent political approval and at least a moral obligation to seek ratification.”).
105
An example of this process can be found in the development of the Hull Rule:
Consider, for example, customary rules governing compensation for
expropriation. In 1938, in response to Mexico’s nationalization of oil
and agrarian assets, U.S. Secretary of State Cordell Hull articulated the
Hull Rule, which requires prompt, adequate, and effective
compensation in the event of expropriation. The United States, as well
as many developed countries, has long considered it to be the
customary rule on compensation for expropriation. In the 1970s,
underdeveloped countries sought to weaken the Hull Rule (along with
the broader international investment regime) through a series of U.N.
General Assembly resolutions. In response, developed countries, led by
the United States, began employing BITs to shore up the existing
regime.
Timothy Meyer, Codifying Custom, 160 U. PA. L. REV. 995, 1025-26 (2012) (internal
citations omitted).
EAST\64724221. 349
It is an inevitable historical mandate. This cross-fertilization simply cannot
be properly managed with reliance based solely upon the legacy public
purpose doctrine. The consequence of expanding the scope of the existing
public purpose doctrine, in addition to amplifying the regulatory sphere of
States to the detriment of investment protection, also destabilizes the
preferred equipoise in the economic relationship between capitalexporting and capital-importing countries. The widening of this chasm in
turn destabilizes public international law policies as well as the juridical
principles that are fundamental to international trade and investment law,
such as the seminal question of whether a finding of public purpose
discharges a State’s obligation to compensate a foreign investor as a result
of a direct or indirect expropriation or nationalization, or conduct
tantamount to a taking. This central concern has been obscured and
polarized by competing interpretations that are directly related to the status
of a State as capital-exporting or capital-importing.106
A corollary to the question of compensation107 from a sovereign’s
perspective needs to be raised as well. Should the public purpose doctrine
play any role, let alone a dispositive one, in determining whether a
sovereign’s tender of compensation in an indirect expropriation, where the
legacy public purpose doctrine is applied, constitutes the imposition of a
penalty on a State for merely exercising its obligations as a sovereign? In
this connection, should the legacy public purpose doctrine constitute a
material test, standard or predicate consideration for determining whether
a nationalization represents a justifiable expression of regulatory
sovereignty in a specific economic sector or an abuse of that authority
under the mantle of public purpose? These concerns relate not only to the
workings of the existing legacy public purpose doctrine, but in particular
can be quite meaningfully traced to consequences derived from the
amplification of the public purpose doctrine because of its subjective
content.108
106
See Patrick M. Norton, A Law of the Future or A Law of the Past? Modern Tribunals
and the International Law of Expropriation, 85 AM. J. INT’L L. 474, 505 (1991) (“[I]t was
argued that the Hull formula could not continue to be valid law in the face of the
opposition of a majority of States. At the same time, since the development of customary
international law requires the consent of all significant interest groups of States, the
persistent opposition of one group, i.e., the capital-exporting States, prevented the
development of any alternative formula into new law.”) (internal citations omitted).
107
A detailed consideration of the extent to which the public purpose doctrine effects
compensation within the framework of direct or indirect expropriations or
nationalizations is referenced in the context of Bilateral Investment Treaties, infra
Chapter 4, and Foreign Investment Protection Statutes, infra Chapter 6.
108
The September 2, 1992 draft iteration of Article 1101(4), at Canada’s initiative, sought
to include “ monetary policy” as a public purpose category. This inclusion would have
been tantamount to infusing into the public purpose subjective content national policies
deemed to be necessary, and, therefore, also would have had the effect of suggesting that
EAST\64724221. 350
In addition to subordinating the investment chapter to all other
chapters of the NAFTA “to the extent of [any] inconsistency” pursuant to
Article 1112, Chapter Eleven’s cornerstone investment protection
provision109 (Article 1110 entitled “Expropriation and Compensation”) is
“necessity, without more” (i.e., lacking the predicate principles constituting the State
Necessity Defense) would suffice as a public purpose. The text of this draft, however,
suggests that Mexico opposed it:
4. Nothing in this Chapter shall be construed to prevent a Party from
providing functions or services such as law enforcement, correctional
services, [monetary policy,] [n.3 ‘Canada is considering this bracket.
Mexico does not agree to subject the Mexican monetary policy to the
dispositions on the Investment Chapter.’] income security or insurance,
social security or insurance, social welfare, public education, public
training, public health and childcare, in a manner that is inconsistent
with this Chapter.
NAFTA Negotiating Drafts, supra note 24, Draft of Sept. 2, 1992.
109
The proscription against direct or indirect nationalization or expropriation of an
investment of another NAFTA Party was first framed using the permissive “may,” where
the final version adopts the mandatory “shall.” The paragraph in part reads:
Article 1110: Expropriation and Compensation
1. No Party [may] directly or indirectly nationalize or expropriate an
investment of an investor of another Party in its territory or take a
measure tantamount to nationalization or expropriation of such an
investment….
Id. (emphasis supplied).
One commentator has argued that the NAFTA has the effect of weakening the
sovereign’s exercise of sovereignty in the regulatory sphere. Marisa Yee, The Future of
Environmental Regulation after Article 1110 of NAFTA: A Look at the Methanex and
Metalclad Cases, 9 HASTINGS W.-N.W. J. ENV. L. & POL’Y 85 (Fall 2002). Like Jackson,
infra note 132, she generally points to the NAFTA’s international dispute resolution
mechanism. More specifically, she contends that because the term “expropriation” within
Article 1110 of the NAFTA “remains unclear,” Host States are left “vulnerable to law
suits by foreign companies that conduct business in the host country whenever the host
country’s action reduces the company’s profits. This may jeopardize national regulations,
including efforts to protect the environment.” Id.
In a similar vein, it has been asserted that “[n]on-discriminatory, non-arbitrary
regulations that are legitimate exercises of the police power should be exempted from
Article 1110’s scrutiny. That exclusion should include not only those police-power
regulations exempted from arbitration under GATT, Article XX, but also human rights
and labor standards, which are not covered by GATT Article XX due to their
impermissible focus on production process methods rather than on criteria of products.”
Jessica C. Lawrence, Chicken Little Revisited: NAFTA Regulatory Expropriations After
Methanex, 41 GA. L. REV. 261, 305 (2006). The author further asserts that “[b]ecause the
burden of proof will remain on the claimants under the ‘presumptions that respondent
States act lawfully’ such an alteration or interpretation of the NAFTA text would provide
EAST\64724221. 351
made applicable to “taxation measures,” but arguably qualified by the
jurisdictional predicate of submitting a claim to arbitration pursuant to
Article 1120 (Submission of a Claim to Arbitration).110 To the extent that
the public purpose category of taxation111 requires a prospective claimant
first to submit the issue of whether a particular taxation measure
constitutes an expropriation “to the appropriate competent authorities,”112
a significant check on the ability of investors to interfere with a State’s right to enact
regulations for the benefit of its citizens.” Id. at 305-306.
Although helpful in contextualizing the disparate tensions between investors generally
arising from income-exporting countries and Host States (typically income-importing
sovereigns), Lawrence elects not to comment on the overbroad scope that is engrafted on
the public purpose doctrine (in the form of “police powers”) and its effect on FDI
incentives. Under her formulation, an expansive construction of the public purpose
doctrine is amply checked by the international dispute resolution burden of proof that a
prevailing claimant first must meet.
110
Article 2103 (“Taxation”) paragraph 6 States:
Article 1110 (Expropriation and Compensation ) shall apply to taxation
measures except that no investor may invoke that Article as the basis
for a claim under Article 1116 (Claim by an Investor of a Party on its
Own Behalf) or 1117 (Claim by an Investor of a Party on Behalf of an
Enterprise), where it has been determined pursuant to this paragraph
that the measure is not an expropriation. The investor shall refer the
issue of whether the measure is not an expropriation for a determination
to the appropriate confident authorities set out in Annex 2103.6 at the
time that it gives notice under Article 1119 (Notice of Intent to Submit
a Claim to Arbitration). If the competent authorities do not agree to
consider the issue or, having agreed to consider it, fail to agree that the
measure is not an expropriation with a period of six months of such
referral, the investor may submit its claim to arbitration under Article
1120 (Submission of a Claim to Arbitration).
NAFTA, supra note 18, art. 2103 ¶ 6.
111
Taxation is not mentioned Article 1101(4), but amply meets the NAFTA Standard as
defined in this text.
112
Annex 2103.6 defines competent authorities for purposes of Article 2103: Taxation as
follows:
For purposes of this Chapter: competent authority means:
a.
in the case of Canada, the Assistant Deputy Minister for Tax
Policy, Department of Finance;
b.
in the case of Mexico, the Deputy Minister of Revenue of the
Ministry of Finance and Public Credit (“Secretaría de
Hacienda y Crédito Público”);
c.
in the case of the United States, the Assistant Secretary of the
Treasury (Tax Policy), Department of the Treasury.
EAST\64724221. 352
as a condition precedent to perfecting an arbitration claim alleging
expropriation, the NAFTA rubric accords expropriation a distinct status
from that of other public purpose categories.113
F.
Beyond the NAFTA Chapter Eleven Framework: The
NAFTA’s Anatomy Provides for an Expansive Construction of
the Public Purpose Doctrine and the “Legitimate Objective”
Standard
The term “public purpose” does not appear in the NAFTA beyond
Chapter Eleven.114 A permutation of the term, mostly in the form of
“public interest,” appears eight times.115 The term appears once in the
“public welfare” iteration.116 Throughout the NAFTA the public purpose
doctrine serves as an organizing principle. The doctrine is fundamental in
structuring, defining, and harmonizing the allocation of affirmative
obligations and proscriptions concerning a substantively diverse gamut of
public purpose categories.117 From a macro point of view, the entire
NAFTA significantly mirrors the public purpose doctrine structural
organization of Chapter Eleven.
NAFTA, supra note 18, annex 2103.6.
113
The requirement to submit for a determination the question of whether a taxation
measure constitutes an expropriation, competent authorities in the context of a six-month
waiting period or determination period, whichever comes first, likely constitutes a
jurisdictional condition precedent that can only be obviated either (i) upon penalty of
triggering lack of consent in the event that an arbitral claimant’s filing would provide a
Host State with a jurisdictional defense to the claim, or (ii) in situations where the
competent authority structurally or politically is incapable of or unlikely to process the
claim within the applicable time frame. Just as a provision calling for recourse to a
competent authority of the Host State or a limited time frame at the expiration of which
claimant may initiate an arbitral proceeding imposes an obligation on the claimant, such
obligation is bilateral and also places on the Host State the duty to make available
competent authorities or tribunals within the meaning of the treaty that can meet the
treaty obligation. Such provision are bilateral and, therefore, equally applied to investorsclaimants and Host State respondents. See, e.g., Daimler Financial Services AG v.
Argentine Republic, ICSID Case No. ARB/05/1, Award ¶¶ 179-204 (Aug. 22, 2012),
http://www.italaw.com/sites/default/files/case-documents/ita1082.pdf.
114
Supra note 63 & accompanying text
115
See, e.g., NAFTA, supra note 18, art. 721 ¶ 2(b); art. 912 ¶ (b); art. 1015 ¶¶ 4(c), 8(a),
8(i); art. 1017 ¶ 1(j); art. 1019 ¶ 6; art. 1411 ¶ 5(b); art. 1804 ¶ (b).
116
Id. preamble (stating, in relevant part, the parties’ aim to “PRESERVE their flexibility
to safeguard the public welfare.”) (emphasis in original).
117
See e.g., id. art. 1015.
EAST\64724221. 353
Central to the NAFTA’s development and application of the public
purpose doctrine are Articles 904, 915, and 1201, which are conceptually
interrelated with respect to the public purpose doctrine and should be
analyzed together.118 Article 904, entitled “Basic Rights and Obligations,”
relies on the GATT Article XX’s public purpose categories primarily
grounded on (i) safety, (ii) the protection of human, animal or plant life or
health, (iii) environmental concerns, and (iv) consumer protection.119 The
118
Even though these three Articles are not sequentially in immediate order, they are
conceptually inextricable when viewed in a public purpose doctrinal context.
119
This Article provides:
Article 904: Basic Rights and Obligations
Right to Take Standards—Related Measures
Each Party may, in accordance with this Agreement, adopt, maintain or
apply any standards related measure, including any such measures
relating to safety, the protection of human, animal or plant life or
health, the environment or consumers, and any measure to ensure its
enforcement or implementation. Such measures include those to
prohibit the importation of a good or another Party, or the provision of
a service by a service provider of another Party that fails to comply
with the applicable requirements of those measures or to complete the
Party’s approval procedures.
Right to Establish Level of Protection
2.
Notwithstanding any other provision of this Chapter, each
Party may, in pursuing its legitimate objectives of safety or the
protection of human, animal or plant life or health, the environment or
consumers, establish the levels of protection that it considers
appropriate in accordance with Article 907 (2).
Non-Discriminatory Treatment
3.
Each Party shall, in respect of its standards-related measures,
accord to goods and service providers of another Party:
(a) national treatment in accordance with Article 301 (Market
Access) or Article 1202 (Cross-Border Trade in Service);
and
(b) treatment no less favorable than that it accords to like
goods, or in the circumstances to service providers, of any
other country.
Unnecessary Obstacles
4.
No Party may prepare, adopt, maintain or apply any standardsrelated measure with a view or with the effect of creating an
unnecessary obstacle to trade between the Parties. An unnecessary
obstacle to trade shall not be deemed to be created where:
EAST\64724221. 354
international law trade exceptions contained in Article 904 comport with
fundamental principles governing cross-border trade in goods and
services; as noted, a subject matter that is materially distinct from
investment or investor protection in international law. Therefore, but for
the hierarchy established in Article 1112120, subordinating the Chapter
Eleven investor-investment protection strictures to all other chapters of the
NAFTA, the unqualified GATT-based public purpose categories appear to
be in keeping with furthering cross-border trade in goods and services.
The Article 1112 mandate, however, contributes to a distortion of the
tempered ratio that must be present between the trade and investorinvestment protection objectives of the NAFTA.
Paragraph four of Article 904 does purport to limit party-autonomy
as to measures implemented in furtherance of the public purpose
categories contained in this Article to the extent that any such measure
may have “the effect of creating an unnecessary obstacle to trade between
the Parties.”121 This qualification in turn is itself subject to a “legitimate
objective” test that first appears in paragraph two of Article 904 and is
repeated in paragraph four subsections (a) and (b). The “legitimate
objective” standard serves to broaden the scope of the Host State’s
regulatory sovereignty.122 Article 904 on three occasions relies upon the
“legitimate objective” standard, but nowhere in this article is the standard
defined. The standard oddly is not defined until eleven articles later in
(a) the demonstrable purpose of the measure is to achieve a
legitimate objective;
(b) the measure does not operate to exclude goods of another
Party that meet that legitimate objective. (emphasis
supplied).
NAFTA, supra note 18, art. 904 (emphasis supplied).
120
Id. art. 1112.
121
Id. art. 904 ¶ 4.
122
This effect of the Host State’s or host Parties’ regulatory-legislative space is
corroborated by the language contained in paragraph 3 of Article 905, which provides:
Nothing in paragraph 1 [relating to the NAFTA Party’s use of relevant
international standards or international standards] shall be construed to
prevent a Party, in pursuing its legitimate objective from adopting,
maintaining or applying any standards-related measure that results in a
higher level of protection than would be achieved if the measure were
based on the relevant international standard.
Id. art. 905 ¶ 3 (emphasis supplied).
EAST\64724221. 355
Article 915 entitled: “Definitions.”123 Because “legitimate objective”
within the meaning of Chapter 9 (“Standards-Related Measures”) of the
NAFTA are defined as a standard and not as a “term,” it is vested with
latitude and flexibility in keeping with the use of standards in international
law and as described in this text.124 Consequently, the Article 904(4)
“check” on the extent to which a NAFTA Party may infringe on another
Party’s goods or service providers is further broadened by the treatment of
“legitimate objective” as a “standard” and not a “term.”
Even though strictly the term “public purpose” does not appear
beyond its solitary reference in Chapter Eleven, (Article 1110(1)(a)),
Article 1201(3)(b) is identical to the NAFTA Standard as set forth in
Article 1101(4).125 The unqualified incorporation of the NAFTA Standard
123
Article 915: Definitions, in pertinent part reads:
1.
For purposes of this Chapter:
Legitimate objective includes an objective such as:
(a) safety,
(b) protection of human, animal or plant life or
health, the environment or consumers, including
matters relating to quality and identifiability of
goods or services, and
(c) sustainable development,
considering, among other things, where appropriate,
fundamental climactic or other geographical factors,
technological or infrastructural factors, or scientific
justification but does not include the protection of domestic
production.
Id. art. 915 ¶ 1.
124
Accordingly, Article 915, while seeming to define the words “legitimate objective”
taken together, instead reconfigures it with the matrix of a standard, as evinced by the
words “such as” and the subordinate clause “considering, among other things, where
appropriate,…” Id.
125
In governing the scope of and coverage of cross-border trade in services within the
Chapter 12 framework in paragraphs, Article 1201, paragraphs 1 and 3 provide:
1.
This Chapter applies to measures adopted or maintained by
Party relating to cross-border trade in services by service
providers of another Party, including measures respecting:
(a) the production, distribution, marketing, sale, and delivery
of a service;
(b) the purchase or use of, or payment for, a service;
EAST\64724221. 356
in the Chapter regulating cross-border trade to limit a Host State’s exercise
of regulatory sovereignty in ways that may be detrimental to another
Party’s investment or trade interests, further demonstrates a doctrinal
conception of public purpose that commands refinement. Investmentinvestor protection and cross-border trade interests have different
objectives and underlying policies.126 The microeconomic model incident
to international investment law generally consists of (i) a single-sector
investment, (ii) by a private entity or natural person, (iii) for a limited time
frame, and (iv) of an amount unlikely to affect materially a State’s
(c) the access to and use of distribution and transportation
systems in connection with the provision of a service;
(d) the presence in its territory of a service provider of
another Party; and
(e) the provision of a bond or other form of financial security
as a condition for the provision of a service.
...
3.
Nothing in this Chapter shall be construed to:
…
(b) prevent a Party from providing a service or performing a
function such as law enforcement, correctional services,
income security, or insurance, social security or insurance,
social welfare, public education, public training, health, and
childcare, in a manner that is not inconsistent with this
Chapter.
NAFTA, supra note 18, art. 1201 ¶¶ 1,3.
126
“[I]nternational investment law is designed to support economic development by
protecting the interests of foreign investors.” Elizabeth A. Martinez, Understanding the
Debate over Necessity: Unanswered Questions and Future Implications of Annulments in
the Argentine Gas Cases, 23 DUKE J. COMP. & INT’L L. 149, 175 (2012); see also
Stephan W. Schill, Enhancing International Investment Law’s Legitimacy: Conceptual
and Methodological Foundations of A New Public Law Approach, 52 VA. J. INT’L L. 57,
59 (2011) (“The public function of international investment law consists of establishing
principles of investment protection under international law that provide for the protection
of property and endorse rule of law standards for the treatment of foreign investors by
States. These principles have the purpose of reducing the so-called “political risk”
inherent in any foreign investment situation.”).
By contrast, the “chief purpose” of international trade law is to promote free trade.
Stephen McCaffrey, Biotechnology: Some Issues of General International Law, 14
TRANSNAT’L LAW. 91 (2001). See also O.A. Odiase-Alegimenlen, globalization, the
World Trade Organization and Developing States; A View from the “South’, CURRENTS:
INT’L TRADE L.J., Winter 2003, at 24 (“The purpose of International trade as espoused
today is the ultimate prosperity of the generality of humankind. This is supposed to occur
through the increase in the volume of trade amongst countries of the world, which will
stimulate demand and therefore production, thus opening up jobs and expanding
opportunities in all spheres.”).
EAST\64724221. 357
economy.127 In high relief, the subject matter of international trade law
generally consists of a (i) full sector or multiple sector economic event, (ii)
taking place over an extended time frame and after a very measured
contractual period of time, (iii) with revenue that materially affects a
State’s economy, and (iv) concerning treaties between nations or
geopolitical subdivisions, but not private entities or natural persons.128 The
objectives and underlying economic policies pertaining to international
trade law are grounded in a macroeconomic framework that generally
seeks to remove or mitigate the effects of trade barriers and other forms of
protectionism.129
Similarly, the international dispute resolution configuration for
controversies arising from alleged non-compliance with investment
protection, and violations pertaining to international trade law also differ.
A breach of international investment law consists of an arbitration
configuration having a private entity or natural person as a claimant and a
State as a respondent.130 Treaty-based investment arbitrations concern
claims for damages. These damages principally are calculated based upon
analysis of past events giving rise to the alleged investment protection
violation.131 In contrast, the relief sought arising from alleged violations of
127
Generally, the harm to the investor stemming from a violation of international
investment law “would be derived primarily from the conduct of the State, which has
actively utilized its sovereign power to place the investor in a worse position than it had
enjoyed before the State’s action.” Joshua Robbins, The Emergence of Positive
Obligations in Bilateral Investment Treaties, 13 U. MIAMI INT’L & COMP. L. REV. 403,
419 (2006).
128
For example, it has been argued that “the WTO system prioritizes, in terms of
remedies, consistency and conformity with the WTO rules over compensation whose
concept is deeply associated with such elements as injury, damages and nullification or
impairment.” Sungjoon Cho, The Nature of Remedies in International Trade Law, 65 U.
PITT. L. REV. 763, 771 (2004).
129
See Sara Dillon, A Farewell to “Linkage”: International Trade Law and Global
Sustainability Indicators, 55 RUTGERS L. REV. 87, 97 (2002) (“[T]he operation of the
current global trading system, complete with its legal rules and dispute resolution
mechanisms, must be examined for evidence of its larger effects.”).
130
See, e.g., Robbins, supra note 129, at 415 (“The modern investor-State dispute
resolution system takes a dramatically different approach. Virtually every BIT contains a
section allowing investors who feel their treaty-based rights have been violated to
institute arbitration against the Host State. Such arbitrations are frequently to be
administered by the International Center for the Settlement of Investment Disputes
(ICSID), an institution within the World Bank Group formed in 1966 to conduct and
promote investor-State dispute resolution.”) (internal footnotes omitted).
131
Christopher M. Ryan, Discerning the Compliance Calculus: Why States Comply with
International Investment Law, 38 GA. J. INT’L & COMP. L. 63, 83 (2009) (“International
investment law permits investors to bring claims directly against States. As such, a
breach of international investment law carries with it the prospect of significant financial
liability. A recent study shows that, as of 2006, the amount of quantified damages
EAST\64724221. 358
international trade law does not contemplate an award of pecuniary
damages based on past violations, but rather issuance of appropriate
modifications to trade regulations that would eviscerate the allegedly
wrongful conduct on a prospective basis.132 The affirmative relief sought
in treaty-based investment arbitrations is premised on alleged violations of
international investment law standards such as the fair and equitable
treatment standard,133 national treatment standard,134 and international
minimum standards.135 Claims predicated on alleged violations of
international trade law commonly concern principles that international
investment law and international trade law have in common, such as mostfavored nation clauses (MFN), but contextualized within a radically
different framework governing trade and tariffs.136
claimed in investment treaty arbitrations ranged from $155,314 to $9.4 billion, with an
average claim of approximately $345 million.”) (citing Susan D. Franck, Empirically
Evaluating Claims About Investment Treaty Arbitration, 86 N.C. L. REV. 1, 54-58
(2007)).
132
See, e.g., Cho, supra note 130, at 771.
133
See generally, ROLAND KLÄGER, FAIR AND EQUITABLE TREATMENT
INTERNATIONAL INVESTMENT LAW (Cambridge University Press 2011).
IN
134
A.F.M. Maniruzzaman, Expropriation of Alien Property and the Principle of NonDiscrimination in International Law of Foreign Investment: An Overview, 8 J.
TRANSNAT’L L. & POL’Y 57, 71 (1998) (“[N]ational treatment is the commitment by a
country to treat enterprises operating on its territory, but controlled by the nationals of
another country, no less favorably than domestic enterprises in like situations.”)
135
One NAFTA tribunal has described the Minimum Standard as follows:
The minimum standard of treatment provision of the NAFTA is similar
to clauses contained in BITs. The inclusion of a “minimum standard”
provision is necessary to avoid what might otherwise be a gap. A
government might treat an investor in a harsh, injurious and unjust
manner, but do so in a way that is no different than the treatment
inflicted on its own nationals. The “minimum standard” is a floor
below which treatment of foreign investors must not fall, even if a
government were not acting in a discriminatory manner.
S.D. Myers Inc. v. Government of Canada, First Partial Award on Liability ¶ 259 (Nov.
13, 2000), 8 ICSID Rep. 18 (2005) [hereinafter S.D. Myers First Partial Award].
136
In the international trade context the national treatment standard, by way of example,
has applied to the GATT, only concerns trade in goods, and, therefore, is not applicable
to trade and services or technology. Similarly, the MFN clause, which pervades the
GATT, seeks to affect economic categories that are wholly unrelated to investment law
policies. The most notable MFN clause in GATT, contained in Article I, paragraph 1, is
illustrative of this point:
With respect to customs duties and charges of any kind imposed on or
in connection with importation or exportation or imposed on the
EAST\64724221. 359
It soon becomes clear that the economics, subject matter,
objectives, underlying policies, and even international dispute resolution
configuration of international investment law and international trade law
are disparate. The NAFTA’s use of a single overarching public purpose
standard in Chapter Eleven and with respect to the remaining NAFTA
chapters on trade is as incongruous as the wholesale importation of GATT
Article XX (“Exceptions”) into Chapter Eleven of the NAFTA or into
bilateral investment treaties.137 A less malleable public purpose doctrine
with objective content is necessary if the goals of both international trade
and investment law are to be maximized and reconciled with the interests
of all parties, i.e., foreign investors, capital-exporting, and capitalimporting countries. The public purpose doctrine in the guise of “public
interest” in the NAFTA chapters beyond Chapter Eleven plays a distinct
role in relation to disclosure or access to information. Pursuant to Article
912 (b), the NAFTA Parties are not obligated to disclose any information
deemed to be “contrary to the public interest.”138 Linking limitations on
the provision of information to so general a standard as “contrary to the
public interest,” even where the NAFTA Standard vests “public interest”
with substantive import, is not different than according the NAFTA
international transfer of payments for imports or exports, with respect
to the method of levying such duties and charges, and with respect to
all rules and formalities in connection with importation and
exportation, and with respect to all matters referred to in paragraphs 2
and 4 of Article III, any advantage, favor, privilege or immunity
granted by any contracting party to any product originating in or
destined for any other country shall be accorded immediately and
unconditionally to the like product originating in or destined for the
territories of all other contracting parties.
GATT, supra note 19, art. I ¶ 1. It is worth underscoring that the MFN clause in Article I,
paragraph 1 of the GATT only applies to the importation and exportation of products. It
is also of an unconditional nature in that it proscribes that any concession granted by a
contracting party to a product of another country “shall by accorded immediately and
unconditionally to the like product originating in or destined for the territories of all other
contracting parties.”
137
See infra Chapter 4.
138
Article 912: Limitations on the Provision of Information, reads:
Nothing in this Chapter shall be construed to require a Party to:
(a)
(b)
communicate, publish texts, or provide particulars or copies of
documents other than in an official language of the Party; or
furnish any information the disclosure of which would impede
law enforcement or otherwise be contrary to public interest,
or would prejudice the legitimate commercial interests of
particular enterprises.
NAFTA, supra note 18, art. 912 (emphasis supplied).
EAST\64724221. 360
Parties unbridled discretion to limit the provision of information.139 A
similar stricture is found in Articles 1019 of Chapter Ten (“Government
Procurement”)140 and Article 1411 of Chapter Fourteen (“Financial
Services”).141 “Public interest” in the NAFTA may determine whether to:
139
Considerable ink has been spilled on the issue of transparency in the NAFTA. See,
e.g., Jack J. Coe, Jr., Transparency in Investor-State Disputes—Adoption, Adaption, and
NAFTA Leadership, 54 U. KAN. L. REV. 1339, 1379-80 (2006) (addressing a new
generation of texts “consolidating, clarifying and promoting transparency practice.”);
Fulvio Fracassi, Confidentiality and NAFTA Chapter Eleven Arbitrations, 2 CHI. J. INT’L
L. 213 (2001); see generally, Carl-Sebastian Zoellner, Transparency in Analysis of an
Evolving Fundamental Principle of International Economic Law, 27 MICH. J. INT’L L.
579, 580-581 (2006); Pedro J. Martinez-Fraga, Juridical Convergence in International
Dispute Resolution: Developing A Substantive Principle of Transparency and
Transnational Evidence Gathering, 10 LOY. U. CHI. INT’L L. REV. 37 (2012).
Furthermore, the NAFTA Parties have interpreted the agreement as follows:
Nothing in the NAFTA imposes a general duty of confidentiality under
disputing Parties to a Chapter 11 Arbitration [or] precludes the Parties
from providing public access to documents submitted to, or issued by, a
Chapter 11 Tribunal.
…
Each Party agrees to make available to the public in a timely manner all
documents submitted to, or issued by a Chapter 11 Tribunal, subject to
redaction of:
(a) confidential business information;
(b) information which is privileged or is otherwise protected from
disclosure under the Party’s domestic law; and
(c) information which the Party must withhold pursuant to the
relevant arbitral rules, as applied.
Notes of Interpretation of Certain Chapter Eleven Provisions of the NAFTA Free Trade
Commission (July 31, 2001), http://www.international.gc.ca/trade-agreements-accordscommerciaux/disp-diff/nafta-interpr.aspx?lang=eng&view=d.
140
Article 1019 in part reads:
1.
Further, to Article 1802(1) (Publication), each Party shall
promptly publish any law, regulation, precedential judicial decision,
administrative ruling of general application in any procedure, including
standard contract clauses, regarding government procurement covered
by this Chapter in the appropriate publications referred to in Annex
1010.1.
…
6.
Nothing in this Chapter shall be construed as requiring any
Party to disclose confidential information the disclosure of which
would impede law enforcement or otherwise be contrary to the public
interest.
NAFTA, supra note 18, art. 1019 ¶ 1,6.
141
Article 1411: Transparency, in relevant part States:
EAST\64724221. 361
award a procurement contract, withhold information pertaining to such an
instrument, or withhold information in connection with the procurement of
consulting services.142
Finally, a reviewing authority investigating a BIT challenge “may
delay the awarding of the proposed contract pending resolution of the
challenge, except in cases of emergency or where the delay would be
5.
Nothing in this Chapter requires a Party to furnish or allow
access to:
(b) any confidential information, the disclosure of which
would impede law enforcement or otherwise be contrary to the
public interest or prejudice legitimate commercial interests of
particular enterprises.
Id. art. 1411 ¶ 5(b).
142
Article 1015: Submission Receipt and Opening of Tenders and Awarding of
Contracts States, in relevant part:
4.
An entity shall award contracts in accordance with the
following:
(c) unless the entity decides in the public interest not to award
the contract, the entity shall make the award to the supplier
that has been determined to be fully capable of undertaking
the contract and whose tender is either the lowest-priced
tender or the tender determined to be the most advantageous in
terms of the specific evaluation criteria set out in the notices or
tender
documentation;
8.
Notwithstanding paragraphs 1-7, an entity may withhold
certain information on the award of a contract where disclosure of the
information:
(a) would impede law enforcement or otherwise be contrary to
public interest.
Id. art. 1015 ¶¶ 4(c), 8(a).
Additionally, Article 1016: Limited Tendering Procedures, in pertinent part provides:
2.
An entity may use limited tendering procedures in the
following circumstances and subject to the following
conditions, as applicable:
(i) where an entity needs to procure consulting services
regarding matters of a confidential nature, the disclosure of
which could reasonably be expected to compromise
government confidences, cause economic disruption or
similarly be contrary to the public interest.
EAST\64724221. 362
contrary to public interest.”143 Beyond Chapter Eleven of the NAFTA, the
NAFTA rubric conceptually and structurally follows the organizational
principles found in Chapter Eleven. The public purpose doctrine finds
identical expression and is not at all modified. The doctrine’s scope and
content remained identical but for the seemingly expansive recourse to
“public interest” principally in the context of disclosures.144 The entire
framework fundamentally adheres to the NAFTA Standard and, therefore,
mirrors the virtues incident to Chapter Eleven, particularly as a result of
the Article 1101(4) effort to fashion a public purpose standard. The
NAFTA regime beyond Chapter Eleven does not contribute to a doctrinal
context or content for the public purpose doctrine other than setting forth a
more detailed iteration of the orthodox-legacy public purpose scheme. Put
simply, the NAFTA chapters beyond Chapter Eleven do not contribute a
satisfactory answer to the underlying inquiries: to what extent are
governmental measures exercised for genuine and legitimate domestic
objectives “legal” despite their detrimental effect on foreign investors or
investments? Is there a limited and identifiable universe of substantive
categories that, from a Global legal perspective, rightfully fall under the
umbrella of public purpose and, therefore, supersede obligations owed to
foreign investor/investments despite the adverse consequences of their
application? Is the public purpose doctrine as embedded in the NAFTA
regime determinative in parceling legitimate State action from the
discriminatory issuance of regulatory decrees? This dynamic upsets the
very principles of bilateralism and symmetry between home and Host
States that, when present, give rise to the requisite transparency,
uniformity, and predictability that purport to be the hallmarks of BITs, as
well as treaty-based arbitral proceedings. International investment law and
treaty-based international arbitration deserve more from the public
purpose doctrine.
G.
Conclusions and Observations
The NAFTA regime ably crafts what may be construed as a public
purpose doctrine standard in Article 1101(4), which is later replicated in
Article 1106(6).145 Certainly this effort represents a notable landmark in
seeking to bestow meaning to the doctrine, at least within the NAFTA
framework. The broad and all-encompassing scope of the categories
comprising what in this writing has been identified as the NAFTA
Standard is problematic. The NAFTA describes the content of its version
of public purpose but does not define it with any rigor in the classical
etymological sense of that word, i.e., definire as in rendering distinct
143
Id. art. 1016 ¶ 2(i).
144
See supra notes 141-44 & accompanying text.
145
NAFTA, supra note 18, art. 1104 ¶ 4; 1106 ¶ 6.
EAST\64724221. 363
because of its very limits or boundaries. Instead, the limitless and
unqualified public purpose categories forming part of the NAFTA
Standard by itself, let alone when coupled with the use of the term “public
interest” throughout the NAFTA chapters beyond Chapter Eleven, divests
the doctrine of all objective content. The doctrine is thus accorded an
intuitive, self-evident status. Consequently, instead of serving as a
standard capable of harmonizing the policies incident to investment
protection with regulatory sovereignty, the public purpose doctrine of the
NAFTA disproportionately favors the State’s regulatory authority to the
likely detriment of investment protection.146 The practical result has
problematic consequences that extend to investor-state arbitration well
beyond the confines of the NAFTA.
The indiscriminate commingling of international trade law with
international investment law exceptions under the public purpose banner is
not conducive to yielding a functional public purpose doctrine beyond the
legacy-orthodox paradigm. The wholesale importation into investment law
of general exceptions from the GATT147 is not conducive to yielding a
public purpose doctrine capable of harmonizing the interests of “foreign
investors” and “Host States.” The general exceptions endemic to
international trade law in theory and practice seek to further underlying
policies that are radically distinct from those pertaining to international
investment law. The Article XX General Exceptions of the GATT
enjoying robust standing in the NAFTA framework, including Chapter
Eleven, should be tepidly applied148 in furtherance of the objectives of
146
The proposition that the public purpose doctrine within the NAFTA more favorably
bolsters the regulatory authority of sovereigns, is contrary to the orthodox understanding
of the effects of trade agreements generally and of the NAFTA in particular. By way of
example, Jackson has observed that, “[t]he North American Free Trade Agreement
(NAFTA) in some respects went very far in its measures seeking national government
changes arguably necessary to fulfill the NAFTA international obligations. This was true
for the NAFTA investor protection rules, and also in relation to environment and labor
standards.” JOHN H. JACKSON, THE JURISPRUDENCE OF GATT AND THE WTO: INSIGHTS
ON TREATY LAW AND ECONOMIC RELATIONS 1, 5 (Cambridge University Press 2000).
147
Compare NAFTA, supra note 18, art. 1106 ¶¶ 6(a)-(c) with GATT, supra note 19, art.
XX.
148
The GATT Article XX, General Exceptions, are to be applied only if “necessary.”
Accordingly, the matter of treaty construction, the exceptions are not to apply where their
objectives can be served by a less restrictive alternative. This principle, however, is not
triggered in the context of protection of foreign investments and investors under
international investment law. To the contrary, because the “jurisprudence” that treatybased international arbitral tribunals generate simply to not constitute binding legal
precedent, the application and construction of General Exceptions are not governed by a
set of binding principles capable of having predictive value. In addition, with respect to
the international law of investment protection, there is no universally accepted or
consistently applied “proportionality” or “effects” tests capable of mitigating the policy
consequences arising from a lack of checks and balances in the application of General
Exceptions. GATT, supra note 19, art. XX.
EAST\64724221. 364
international investment law. The subject matter of international trade law
principally concerns: (i) the protection of the value of tariff concessions;149
(ii) distortions of trade flow; (iii) the effects of non-tariff measures,
including subsidies and countervailing duties; anti-dumping obligations,
technical barriers to trade, government procurement;150 (iv) trade
regulation pertaining to agricultural goods so as to preserve its advantage
in underdeveloped countries, primarily with respect to trade agreement
clauses that distinguish between “industrialized” and “primary” goods;151
(v) restrictions on imports that may injure domestic producers through
“safeguards” techniques;152 and (vi) rules seeking to minimize government
intervention, and also to enhance domestic government intervention in
trade law both with respect to type and amount of trade.153 The general
exceptions found in international trade law are meant to comport with
these (above-referenced) macroeconomic issues. Hence, such public
purpose categories as “prison labor” are staples of the GATT General
For example, “tariffs are the ‘preferred trade policy instrument’ under GATT because the
most-favored-nation and national treatment requirements reinforce negotiated tariff
concessions; because tariffs are relatively open, predictable, pro-competitive, and
domestically acceptable trade policy instruments; and because alternative trade policy
instruments are restricted or prohibited.” Robert J. Girouard, Water Export Restrictions:
A Case Study of WTO Dispute Settlement Strategies and Outcomes, 15 GEO. INT’L
ENVTL. L. REV. 247, 254 (2003).
150
See, e.g., David G. Forgue, An Overview of an International Trade and Customs
Practice, CBA REC., FEBRUARY/MARCH 2002, at 28 (“International Trade law issues
include representing parties in antidumping duty cases involving foreign producers that
allegedly sell their goods at unfairly low price in the U.S., countervailing duty cases
involving subsidies to foreign companies by their governments, matters brought under
Section 201 of the Trade Act of 1974, and similar matters.”).
151
See, e.g., Ari Afilalo, Not in My Backyard: Power and Protectionism in U.S. Trade
Policy, 34 N.Y.U. J. INT’L L. & POL. 749, 782 (2002) (“The Uruguay Round of
negotiations resulted in the reduction of protectionist policies in developed countries. The
Agriculture Agreement that issued from these negotiations required the developed
countries to convert nontariff barriers into tariffs, while preserving equivalent marketaccess opportunities.”).
152
See Frank J. Garcia, Three Takes on Global Justice, 31 U. LA VERNE L. REV. 323,
332-33 (2010) (“The core commitment of contemporary trade law is that of free trade:
international economic relations are to be free, or as free as possible, from governmental
restrictions in the form of tariff and non-tariff barriers, and nondiscriminatory with
respect to country of origin (the most-favored-nation rule) and domestic origin (the
national treatment rule).”) (citation omitted).
153
JOHN H. JACKSON, THE JURISPRUDENCE OF GATT & THE WTO 1, 38-40 (Cambridge
University Press 2000) (citing Subcommittee on International Trade of the Senate
Committee on Finance, 96th Cong., 1st Sess., MTN Studies: MTN and the Legal
Institutions of International Trade (Committee Print, 1979) Vol. IV.4-5 (report prepared
by J. Jackson at the request of the Subcommittee on International Trade)).
EAST\64724221. 365
Exceptions, but conceptually remain far afield from the issues pervading
international investment law.154 The precepts of international trade law
used to enhance trade flow patterns simply are ill-suited to constitute the
substantive content of a public purpose doctrine seeking to preserve this
objective while protecting foreign investor/investments, and attracting
foreign direct investment (“FDI”).
The development of the Public Purpose Standard and the
legitimate effort to engraft a subject-matter “definitive” to the doctrine
must be recognized as more than a tepid first step towards developing
public purpose beyond a self-evident truth pertaining to all things public,
and must remain self-judging by the invoking State. This contribution
notwithstanding, the importance of public purpose as both an organizing
principle and a source for legitimacy in the process of exercising
regulatory sovereignty commands objective content and application. The
public purpose doctrine within the NAFTA is accorded great weight but
little specificity. The role of the doctrine within customary international
law as simplified by the NAFTA is significant, but its workings all too
often resemble a license granted to the Host States to engage in regulatory
sovereignty at the expense of investor/investment protection.
H.
The Jurisprudence of Public Purpose in the NAFTA
Structurally, the jurisprudence of any statutory framework would
serve to define principles and terms. One of the rudimentary promises that
decisional-law aspires to redeem is the development of statutory
frameworks vested with predictive value, uniformity of standard, and
transparency,155 notwithstanding the lack of stare decisis of such
awards.156 The “jurisprudence” of public purpose within the NAFTA does
not meet this objective. To the contrary, the “decisional-law” that the
NAFTA has spawned emphasizes the shortcomings of the public purpose
doctrine generally and within the NAFTA in particular.
The failings of the “NAFTA common law” in part arise from the
very nature of treaty-based international arbitration.157 The Chapter Eleven
dispute resolution framework provides for ad hoc arbitration tribunals.
154
GATT, supra note 19, art. XX ¶ (e).
155
See generally BENJAMIN CARDOZO, THE NATURE OF JUDICIAL PROCESS (1921).
156
See, e.g., Pedro J. Martinez-Fraga & Harout Jack Samra, The Role of Precedent in
Defining Res Judicata in Investor-State Arbitration, 32 NW. J. INT’L L. & BUS. 419, 449
(2012) (noting “[t]he uncertain nature and application of the doctrine of precedent—stare
decisis—in international arbitration.”).
157
It would be a mistake to represent that an arbitration based on consent arising from a
treaty and concerning issues in dispute of great public importance.
EAST\64724221. 366
The arbitrators are empaneled for the exclusive purpose of processing the
single case over which they preside. Unlike judicial courts, investor-state
arbitrations are not altogether part of a sovereign’s exercise of sovereignty
through the judicial branch of government. Treaty-based international
arbitration formally takes place beyond the realm of a sovereign’s exercise
of sovereignty. Even though investor-state international arbitrations
address issues of public policy and public international law, arbitral
awards do not generate second-instance jurisprudence because they are not
appealable.158 Moreover, because of their ad hoc configuration and want
of judicial status (a non-State administration of justice) arbitral awards do
not constitute binding precedent.159 These awards at most are deemed to
cosnstitute persuasive authority. Treaty-based arbitration proceedings, and
particularly Chapter Eleven arbitrations, in contrast with judicial
proceedings, have been widely criticized by commentators as suffering
from a “transparency deficit.”160 In fact, both the party-appointed
arbitrator system and the practice of dissent writing in treaty-based
international arbitration have been identified as problematic features that
tend to delegitimize the entire treaty-arbitral process because they are
emblematic of lack of arbitrator impartiality and in some instances,
independence.161 The lack of a mature NAFTA jurisprudence providing
for a systematic development and refinement of the public purpose
doctrine in part can be explained as the consequence of an overarching
systemic debility arising from the very nature of decisional-law in treatybased international arbitration.
A second contributing factor that helps explain the impoverished
and often conceptually contradictory status of the jurisprudence addressing
the public purpose doctrine within the NAFTA must be attributed to the
unduly broad scope and subjective content (State-oriented) of the legacy
public purpose doctrine. The orthodox conception of the public purpose
doctrine is based on the unworkable proposition that a State’s subjective
intent to use the property that has been the subject of a direct or indirect
expropriation or nationalization for a public purpose renders the taking a
158
See, e.g., Convention on the Settlement of Investment Disputes Between States and
Nationals of Other States art. 53, Mar. 18, 1965, 17 U.S.T. 1270, 575 U.N.T.S. 159
[hereinafter ICSID Convention].
159
See, e.g., Statute of the International Court of Justice art. 59, June 26, 1945, 59 Stat.
1055 (providing that a “decision of the Court has no binding force except between the
parties and in respect of that particular case.”)
160
As noted in prior writing, the “arbitral decision-making remains an impenetrable
‘black box’ process. Despite ably chronicled significant gains for transparency,
deliberations remain obscured by design and practice in order to minimize the scope of
judicial intervention at the enforcement stage.” Martinez-Fraga, supra note 51, at 46.
161
NAFTA, supra note 18, art. 1110 (“Expropriation and Compensation”).
EAST\64724221. 367
legal act of State.162 In fact, the proposition has been advanced that where
the public purpose standard has been met, a State is exempt from the
payment of any compensation because the failure to exempt a State would
result in imposing a fine on a sovereign for merely undertaking its
regulatory obligations.163 After all, a sovereign has an obligation to
regulate. Pursuant to this standard, however, virtually every act of State
constitutes a public purpose. Hence, a very simple and legitimate question
remains. What constitutes a public purpose? Three related but distinct
inquiries also need to be raised. How is public purpose defined? When is
public purpose met? What type of tribunals should sit in judgment of a
public purpose issue?
The NAFTA jurisprudence of public purpose does not bring us any
closer to answering these questions. In contrast, the conceptual categories
discernible from the complex mosaic of ad hoc tribunals struggling with
public purpose—either as a determinative standard by itself or as one of
four elements to be considered in determining the legality of an
expropriation or nationalization—are patently inconsistent in harmonizing
the policies of international investment law with the underpinnings of
international trade law.164
As shall be discussed, efforts to devise tests and standards for
calibrating the delicate balance between the protection of foreign
investment/investor and the lawful exercise of sovereignty in furtherance
of a public purpose only have served to obscure even further the public
purpose doctrine. Much like the Ptolomaic effort directed at “saving the
appearances” of the movement of celestial bodies by repeatedly engrafting
162
Article 1110: Expropriation and Compensation, of the NAFTA is illustrative of the
standard. It provides that a direct or indirect nationalization or expropriation of an
investment of an investor of another Party in its territory constitutes a legal taking where
“(a) [the property is used] for a public purpose; (b) [and has been taken] on a non-hyphen
discriminatory basis; (c) in accordance with due process of law and Article 1105(1); and
(d) on payment of compensation in accordance with paragraph 2 through 6.” Id. art. 1110
¶¶ 1(a)-(d).
163
See, e.g., Matthew C. Porterfield, State Practice and the (Purported) Obligation
Under Customary International Law to Provide Compensation for Regulatory
Expropriations, 37 N.C. J. Int’l L. & Com. Reg. 159, 164 (2011) (noting that there
appears to be “some support for the position that there is a police power exception to the
compensation requirement--i.e., that a nondiscriminatory regulatory measure cannot
constitute an act of expropriation regardless of its adverse economic impact,” but that
only a minority of cases have found this to be so).
164
As suggested in Article 1110 1(a)-(d), as part of both conventional and customary
international law expropriation/nationalization analysis, public purpose often is
considered together on equal footing with (i) non-discriminatory basis, (ii) the presence
of due process of law, and (iii) payment of compensation. NAFTA, supra note 18, art.
1110 (“Expropriation and Compensation”).
EAST\64724221. 368
an epicycle upon an epicycle in a near infinite effort to devise a theory that
would bestow uniformity and predictive value on the movement of the
heavenly bodies, “legal epicycles” began to appear in the firmaments of
treaty-based arbitration awards. Legal gyrations such as the
“proportionality test” first identified by the tribunal in the Fireman’s Fund
case165 sought to discern the appropriate proportionality between the
means employed by a State and the aim sought to be achieved, together
with the good faith nature of the measure. The Fireman’s Fund tribunal
was silent with respect to any theoretical or practical definition of the
proportionality principle that it created. Similarly, it failed to explain the
principle’s foundation in international law and also did not detail the
application of proportionality to any fact pattern.
Other tribunals, such as in TecMed,166 which was decided three
years before Fireman’s Fund, observed the need to use “proportionality”
as a principle of public international law that would serve as a litmus test
in harmonizing a State’s exercise of its regulatory authority appropriately
with investment/investor protection. The use of a concept such as
“proportionality” bespeaks objectivity and compromise. TecMed mentions
the proportionality principle, but, as with the tribunal in Fireman’s Fund,
did not voice any theoretical or practical definition of the proportionality
principle or the important role that the public purpose doctrine may enjoy
if infused with greater substantive content and applied within the context
of a proportionality rubric.
A proportionality standard addresses the State’s objective in any
alleged expropriation or nationalization against the effects that such a
taking would have on the subject foreign investment/investor. These two
elements—effects and a State’s objective in exercising its authority—
invariably led to a “sole effects” standard under which only the
purportedly detrimental effects that a measure may have on an
investment/investor need to be considered in assessing the viability of a
claim arising from a direct or indirect nationalization or expropriation.167
165
Fireman’s Fund Insurance Co. v. United Mexican States, ICSID Case No. ARB
(AF)/02/01, Award (July 17, 2006), 16 ICSID Rep. 523 (2012) [hereinafter Fireman’s
Fund].
166
See Técnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case
No. ARB (AF)/00/2, Award (May 29, 2003), 10 ICSID Rep. 134 (2006) [hereinafter
TecMed].
167
See, e.g., Saipem S.p.A. v. The People’s Republic of Bangladesh, ICSID Case No.
ARB/05/07, Award ¶ 133 (Jun. 30, 2009) [hereinafter Saipem S.p.A.] (“[A]ccording to
the so-called ‘sole effects doctrine’, the most significant criterion to determine whether
the dispute actions amount to indirect expropriation or are tantamount to expropriation is
the impact of the measure.”).
EAST\64724221. 369
This gamut ranging from proportionality, effects, and sole effects,
all presumably aspiring to limit a State’s use of its regulatory authority in
the context of expropriations or nationalizations, only fosters greater
confusion, inconsistency, and lack of uniformity.
The divergent positions that theoretically would vastly contribute
to the definition of the public purpose doctrine within the NAFTA
framework, reaches its apogee in the competing views expounded by the
tribunal in Metalclad168 and Methanex.169
1.
The Metalclad Legacy: One Extreme
Metalclad, decided five years before the issuance of the final
award on jurisdiction and merits in Methanex, was one of the pioneer
cases in the NAFTA jurisprudence addressing environmental regulations
and, therefore, directly falling within the ambit of the GATT’s Article XX
General Exceptions that were incorporated into the NAFTA’s Chapter
Eleven framework as well as the treaty’s general structure.170 The case
presents a wealth of issues and a rich factual narrative ranging from (i)
State responsibility, (ii) the failure to meet conditions precedent to
contractual obligations, (iii) conflicting State/federal representations
communicated to a foreign investor by the Host State, (iv) the closure of a
hazardous waste transfer station by the federal government of Mexico
prior to its acquisition, (v) a municipality’s challenge to an operation
agreement (“Convenio”) entered into by the federal government of
Mexico and the foreign investor, (vi) estoppel and ratification defenses
arising from the continuous, open, and notorious construction of a
hazardous land waste facility, and (vii) to the effect of an ecological
decree banning operation of a hazardous land waste facility for the public
purpose of protecting a species of cacti. The case also serves as an ideal
case-study for analysis of the public purpose doctrine within the NAFTA
because it enjoys the added benefit of an opinion issued by the Supreme
Court of British Columbia arising from the Host State’s effort to vacate
the award.171
168
Metalclad, supra note 97.
169
Methanex Corp. v. United States of America, NAFTA Ch. 11/UNCITRAL, Final
Award on Jurisdiction and Merits (Aug. 3, 2005), 16 ICSID Rep. 40 (2012) [hereinafter
Methanex].
170
Metalclad was decided in August 2000, and while the Methanex tribunal issued a
partial award on jurisdiction and evidence-gathering in 2002, the final award on
jurisdiction and merits was not entered until August, 2005.
171
See United Mexican States v. Metalclad Corp., 2001 BCSC 664 (2001). This opinion
is helpful because, among other considerations, it premises its analysis exclusively on
uncontroverted facts.
EAST\64724221. 370
The Metalclad tribunal virtually dispensed with any sustained
analysis of the role of the public purpose doctrine in any of its
permutations, i.e., public interest, police powers, or even in the form of a
State’s regulatory authority. It also refrained from any “proportionality”
scrutiny pursuant to which the public purpose or benefit of the regulatory
measure at issue would be weighed against its effect on the operative
investment/investor. Instead, the tribunal selected as its organizing
conceptual principle—ratio decidendi—three factors: the detrimental
effects that the regulatory measure had on the investment;172 what the
tribunal characterized as “lack of transparency” concerning the workings
of the Mexican government;173 and the thwarted investor expectations
stemming from representations made by Mexican government officials.174
The emphasis placed on this triad wrests all predictive value from
the public purpose doctrine or even the NAFTA Public Purpose Standard
articulated in Article 1101(4). Revisiting the tribunal’s analysis through
the particular prism of the public purpose doctrine, however, is necessary
if in fact its reasoning and decision are to be rescued from the “catch-all”
quagmire of basing its analysis on the “particular nature” or “unique facts”
underlying the case.175
The Metalclad case concerned a property site (“the site”) in La
Pedrera, a valley located within the municipality of Gualdalcazar (“the
Municipality”), in the State of San Luis Potosi (“the State of SLP”),
Mexico.176 The site was owned by Confinamiento Técnico De Residuos
Industriales, S.A. de C.V. (“COTERIN”), a Mexican corporation. Both the
site and COTERIN were first owned by Mexican nationals.177 In 1993,
Metalclad Corporation (“Metalclad”), a United States corporation
incorporated under the laws of Delaware, through its subsidiary,
purchased COTERIN. Simultaneously with that transaction the ownership
of the site was transferred to COTERIN.178
172
Metalclad, supra note 97, at ¶ 104.
173
Id. at ¶ 99
174
Id. at ¶¶ 107-108.
175
Because of the nature of the decisional-law that treaty-based arbitration generates,
specifically its ad hoc character, the danger of ascribing selective consideration of
international law principles to “a unique set of facts” (an observation applicable to
virtually every dispute) looms large and must be obviated.
176
Metalclad, supra note 97, at ¶ 28.
177
Id. at ¶ 29.
178
Id. at ¶ 30.
EAST\64724221. 371
Prior to Metalclad’s acquisition of COTERIN, the federal
government of Mexico ordered the closure of a hazardous waste transfer
station that was located at the site and operated by COTERIN on the
ground that 20,000 tons of waste were not transferred from the site after
having been deposited on the site without treatment or separation.
Moreover, the Municipality of Guadalcazar, (“the Municipality”) in 1991,
prior to Metalclad’s acquisition of COTERIN, had denied COTERIN an
application for a permit to construct a hazardous waste landfill at the
site.179
What follows are uncontroverted but conflicting Statements of fact
between federal and municipal authorities. Specifically, in January 1995,
COTERIN received a third construction permit from federal authorities
authorizing the construction of the final phases of the facility.180 By that
time COTERIN already had commenced construction of the hazardous
waste landfill facility.181 The Municipality, however, never authorized the
construction and in fact issued a stop order to the activity on the site based
upon the absence of a municipal permit.182 Notwithstanding the
Municipality’s stop-work order, COTERIN continued with the
construction of the hazardous waste landfill facility at the site for
approximately five months until completion.183
The tribunal’s award suggests that the conflicting dispositions
between municipal and federal authorities were such that while the
179
In 1993 COTERIN did receive three permits concerning the hazardous waste landfill
at the site. These permits, however, were not issued by the Municipality. Two of the
permits were issued by the National Institute of Ecology and Agency of Mexico’s
Secretariat of the Environment, National Resources and Fishing. These permits
authorized the construction and operation of the landfill. The third permit was issued by
the State of SLP and concerned land use. The receipt of these three permits and the nonissuance of a permit by the Municipality were material to the tribunal’s analysis, because
Metalclad’s agreement to purchase COTERIN provided that the payment of the purchase
price was subject to, inter alia, the condition that either (i) a municipal permit was issued
to COTERIN or (ii) COTERIN had received a final non-appealable judgment from
Mexican tribunals that a municipal permit was not required for the construction of the
landfill. Id. at ¶¶ 50-56, 77-87.
Factually, Metalclad closed its acquisition of COTERIN without either of these
conditions having been met. Id. at ¶ 43
180
Id. at ¶ 39
181
Id. at ¶ 40.
182
Id. at ¶ 50. Indeed, approximately two years after Metalclad applied for a municipal
construction permit the Municipality denied it.
183
Id. at ¶¶ 41-45.
EAST\64724221. 372
Municipality had issued a stop order and denied Metalclad’s application
for a construction permit for the facility on the site, the federal authorities
negotiated with Metalclad and reached an agreement called the Convenio.
Pursuant to this instrument, Metalclad would be allowed to operate the
landfill facility for a five-year term, and during the first three years of this
term to remediate the previous contamination on the site.184
The Municipality unsuccessfully challenged the Convenio by
pursuing an administrative complaint with the Secretariat of the
Environment and simultaneously pursued an injunction in federal court in
Mexico seeking to enjoin the Convenio’s execution. Injunctive relief
initially issued but was subsequently dismissed.185 After engaging in
multiple appeals to a Mexican Federal Court and the Mexican Supreme
Court, COTERIN decided to abandon the pursuit of judicial remedies as a
gesture of good faith to the Municipality and as a predicate to
negotiations. Upon reaching an impasse in the negotiations with the
Municipality, Metalclad commenced arbitration under Article 1119 of the
NAFTA.
Remarkably, the tribunal’s award does not mention, let alone
elaborate on, the environmental/ecological harm that the Municipality
sought to mitigate or prevent. This aspect of the case is salient because of
its omission. In addition to the obvious subject matter of the dispute, i.e.,
the operation of a hazardous waste landfill, a threat to the environment
can be inferred from two factual assertions that are fleetingly Stated and
virtually lost in the body of the award comprising 131 paragraphs. First, in
October, 1991, prior to Metalclad’s acquisition of COTERIN, the
Municipality had denied COTERIN its application for the construction of
the facility.186 Second, the award reflects that demonstrators impeded the
184
Id. at ¶¶ 47-48.Subsequent to the execution of the Convenio federal authorities
provided COTERIN with a permit allowing it to increase by ten-fold the annual permitted
capacity of the facility from 36,000 tons to 360,000 tons. Id. at ¶ 58.
185
Id. at ¶ 56.
186
The reasons underlying this initial denial of the application are not continued in the
award. In fact, that there was a denial at all prior to Metalclad’s acquisition of COTERIN
is scarcely referenced as part of a subordinate clause of a two-sentence paragraph.
Accordingly, no weight was accorded to this fact and the environmental considerations
attendant to it cannot be gleaned with any degree of specificity:
On December 5, 1995, thirteen months after Metalclad’s application for
the municipal construction permit was filed, the application was denied.
In doing this, the Municipality recalled its decision to deny a
construction permit to COTERIN in October, 1991 and January 1992
and noted the ‘impropriety’ of Metalclad’s construction of the landfill
prior to receiving a municipal construction permit.
EAST\64724221. 373
“open house” or “inauguration” of the facility by blocking major access
arteries and thus preventing access to the facility to workers and guests,
i.e., invited dignitaries from the United States and from Mexico’s local,
State, and federal governments.187 This heightened level of concern
bespeaks fear for health and safety, even though the award is bereft of any
such suggestion.188 Other than these two scant suggestions, the
environmental effect that the landfill could have had and its consequences
to health, safety, and fauna simply is not discussed.189
The substance of what otherwise likely would have been a deeper
inquiry into the public safety, health, and environmental issues
surrounding the landfill were ironically marred by the tribunal’s
discussion of transparency/jurisdictional conflicts. Using its understanding
of the NAFTA’s reference to “transparency” in Article 102(1) to extend to
the workings of a Host State’s government in relation to a particular
investment, the tribunal reads the Article 102(1) (“Transparency
Principle”) “to include the idea that all relevant legal requirements for
purposes of initiating, completing, and successfully operating investments
made, or intended to be made, under the Agreement [the NAFTA] should
Id. at ¶ 50 (emphasis supplied). We also learn from the Tribunal’s recitation of the terms
of the Convenio that “Metalclad would also provide one day per week of free medical
advice for the inhabitants of Guadalcazar through Metalclad’s qualified medical
personnel, employ manual labor from within Guadalcazar, and give preference to the
inhabitants of Guadalcazar for technical training.” Id. at ¶ 48. It is not clear, however, the
extent to which Metalclad’s provision of medical advice to the inhabitants of Guadalcazar
is related to the possible effects of the hazardous waste facility.
187
Id. at ¶¶ 45-46.
188
In fact, as to this point, the award limits itself to restating Metalclad’s position “that
the demonstration was organized at least in part by the Mexican State and local
governments, and that State troopers assisted in blocking traffic into and out of the site.
Metalclad was thenceforth effectively prevented from opening the landfill.” Id. at ¶ 46.
189
There is minor discussion on whether the landfill site was geographically suitable or a
hazardous waste landfill facility. This issue, however, was limited to a single paragraph
reference because the concern appeared to have been allayed:
In February 1995, the Autonomous University of SLP issued a study
confirming earlier findings that, although the landfill site raised some
concerns, with proper engineering, it was geographically suitable for a
hazardous waste landfill. In March 1995, the Mexican Federal
Attorney’s Office for the Protection of the Environment [citation
omitted], and independent sub-agency of SEMARNAP [Secretariat of
the Mexican Environment, Natural Resources and Fishing], conducted
an audit of the site and also concluded that, with proper engineering
and operation, the landfill site was geographically suitable for
hazardous waste landfill.
Id. at ¶ 44.
EAST\64724221. 374
be capable of being readily known to all affected investors of another
Party. There should be no room for doubt or uncertainty on such
matters.”190 Mexico, the tribunal found, “failed to ensure a transparent and
predictable framework for Metalclad’s business planning and
investment.”191
This want of transparency, in the tribunal’s analysis, stemmed
from diametrically conflicting jurisdictional Statements and strictures
concerning the extent to which the Municipality’s permit for the
construction of the landfill facility was a requirement in circumstances
where such construction already had received federal approval.192
The conflicts between Mexico’s federal government and the
Municipality was stark. Federal officials allegedly told Metalclad that if it
submitted an application for a municipal construction permit that “the
Municipality would have no legal basis for denying the permit and that it
would be issued as a matter of course.”193 The question of whether
Metalclad as an investor rightfully harbored expectations that it was
entitled to construct a facility and acted reasonably in reliance of federal
officials manifestly diverted the analysis away from consideration of the
health, safety, and environmental issues associated with the landfill and
the manner in which such issues in turn would be affected by the
Municipality’s denial of a construction permit. Consequently, whether
wittingly or by happenstance, the tribunal fashioned part of the test as a
subjective inquiry premised on investor expectations. This conceptual
approach placed considerable emphasis on the (i) licensing jurisdictional
conflict between Mexico’s federal government and the Municipality, and
(ii) the extent to which an investor may legitimately rely on the
representations advanced by government officials, instead of formulating a
190
Id. at ¶ 76.
191
Id. at ¶ 99.
192
The Tribunal observed that “[e]ven if Mexico is correct that a municipal construction
permit was required, the evidence also shows that, as to hazardous waste evaluations and
assessments, the federal authority’s jurisdiction was controlling and the authority of the
Municipality only extended to appropriate construction considerations. Consequently, the
denial of the permit by the Municipality by reference to environmental impact
considerations in the case of what was basically a hazardous waste disposal landfill, was
improper, as was the Municipality’s denial of the permit for any reason other than those
related to the physical construction or defects in the site.” Id. at ¶ 86. The Municipality
never alleged that there were physical construction or engineering defects in the site.
193
Id. at ¶ 88. In fact, “[t]he absence of a clear rule as to the requirement or not of a
municipal construction permit, as well as the absence of any established practice or
procedure as to the manner of handling applications for a municipal construction permit,
amounts to a failure on the part of Mexico to ensure the transparency required by
NAFTA.” Id.
EAST\64724221. 375
more broad-based approach that would not fail to consider the
Municipality’s environmental concerns and how these issues could be
addressed by denial of a construction permit.194 Moreover, in addition to
finding that the Municipality’s jurisdiction was limited to denying
construction permits only with respect to “construction aspects or flaws of
the physical facility,” the tribunal also underscored that pursuant to
Articles 26 and 27 of the Vienna Convention on the Law of Treaties,
compliance with domestic law does not justify non-performance of a
treaty violation.195 The local government’s lack of authority for denying
the construction permit and its connection to a finding of violation of fair
and equitable treatment on Mexico’s behalf, was not at any time
juxtaposed to its logical countervailing consideration. If the investor has
been denied fair and equitable treatment, is the State being penalized for
lawfully exercising its sovereignty in the form of a permit denial and
issuance of an Ecological Decree?196
194
The award is rife with references to the issue of representations advanced by officials
of Mexico’s federal government to Metalclad:
85. Metalclad was led to believe, and did believe, that the federal and
State permits allowed for the construction and operation of the
landfill. Metalclad argues that in all hazardous waste matters, the
Municipality has no authority. However, Mexico argues that
constitutionally and lawfully the Municipality has the authority to
issue construction permits.
87. Relying on the representations of the federal government, Metalclad
started constructing the landfill, and did this openly and
continuously, and with the full knowledge of the federal, State and
municipal governments, until municipal “Stop Work Order” on
October 26, 1994. The basis of this order was said to have been
Metalclad’s failure to obtain a Municipal construction permit.
88. In addition, Metalclad asserted that federal officials told it that if it
submitted an application for a municipal construction permit, the
Municipality would have no legal basis for denying the permit in
that it would be issued as a matter of course…
89. Metalclad was entitled to rely on the representations of federal
officials and believes that it was entitled to continue its construction
of the landfill….
Id. at ¶¶ 85-89.
195
Id. at ¶ 100; see also VCLT, supra note 105, arts. 26-27.
196
The Governor of SLP issued an Ecological Decree declaring a Natural Area for the
protection of rare cactus. The area of the landfill is encompassed by the Decree’s Natural
Area.
Even though Metalclad also relied on this Ecological Decree as an additional ground in
furtherance of its claim of expropriation, inter alia, asserting that the Decree effectively
EAST\64724221. 376
Having concluded that the Municipality lacked authority to deny
the permit, and that investor’s expectations had been wrongfully and
unjustifiably undermined, the tribunal fashioned an “effects test” that
appears to have been crafted in a vacuum and not within the framework of
a system that in great measure rests on the public purpose doctrine.
2.
An “Effects Test” Beyond the Purview of Public
Purpose
The Metalclad tribunal’s “effects test” appears to derive from
Article 1110 of the NAFTA.197 The tribunal observed that:
[E]xpropriation under NAFTA includes not only open,
deliberate, and acknowledged takings of property, such as
outright seizure or formal or obligatory transfer of title in
favour of the Host State, but also covert or incidental
interference with the use of property which has the effect of
depriving the owner, in whole or in significant part, of the
use or reasonably-to-be-expected economic benefit of
property even if not necessarily to the obvious benefit of
the Host State.198
This subordinate clause “or take a measure tantamount to…
expropriation,” the Metalclad tribunal construed as appropriately having
the corresponding standard of having “the effect of depriving” an owner of
the use or economic benefit of property. The elements of the Article 1110
nationalization or expropriation exception ((i) public purpose, (ii) on a
non-discriminatory basis, (iii) in accordance with due process of law, and
(iv) non-payment of compensation consonant with Article 1110) are not
ostensibly incorporated into the test, except perhaps for the obscure
phrase, “even if not necessarily to the obvious benefit of the Host
State.”199
The second source that the tribunal relied upon in fashioning its
“effects test” was the arbitral award issued in the Biloune, et al v. Ghana
and permanently precluded the operation of the landfill, Metalclad, supra note 97, at ¶¶
59, 96, the Tribunal did not rely on the Ecological Decree in its finding in favor of
Metalclad on the expropriation claim. It did, however, add that “the implementation of
the Ecological Decree would, in and of itself, constitute an act tantamount to
expropriation.” Id. at ¶ 111.
197
Nowhere, however, in Article 1110 does the word “effect” or any permutation of the
term appear. See NAFTA, supra note 18, art. 1110.
198
Metalclad, supra note 97, at ¶ 103 (emphasis supplied).
199
Id.
EAST\64724221. 377
Investment Centre, et al.200 This authority is the only decisional law cited
in the award as part of the tribunal’s ratio decidendi. It is also significant
to note that the tribunal opined that Biloune materially resembled the case
before it.201 Consonant with its analysis of Article 1110, which strictly
focused on the language pertaining to an indirect expropriation of an
investment and completely excluded any public purpose consideration, the
tribunal’s treatment of Biloune centered on the connection between the
denial of a permit and the effect of that the denial on the investment. Other
factors, including the investor’s “justified reliance on these government
representations regarding the permit,” were also considered.202 A closer
reading of Biloune, however, suggests that an “effects test” without
consideration of a public purpose doctrine justifiably finds credible
resonance in that dispute because the underlying facts simply did not give
rise to a public purpose countervailing analysis. Only very superficially
does Biloune resemble the competing interests configuring Metalclad.203
Quite significantly, poles apart from the construction and operation
of a hazardous waste landfill facility, the investment in Biloune concerned
“renovating, expanding, and operating [a] restaurant/resort complex at
Palm Court.”204 Public safety, health, and risk to the environment were not
at issue. The “effects test” that the tribunal applied in Biloune correctly
200
Biloune and Marine Drive Complex Ltd. v. Ghana Investments Centre and the
Government of Ghana, Award on Jurisdiction and Liability (27 October 1989), 95 I.L.R.
183 (1993) [hereinafter Biloune].
201
The Tribunal placed considerable weight on what it understood to be meaningful and
material factual parallels between the two cases. It noted the following points in common:
The present case resembles in a number of pertinent respects that of
Biloune, et al v Ghana Investment Centre, et al [citation omitted]. In
that case, a private investor was renovating and expanding a resort
restaurant in Ghana. As with Metalclad, the investor, basing itself on
the representations of a government affiliated entity, began construction
before applying for a building permit. As with Metalclad, a Stop Work
Order was issued after a substantial amount of work had been
completed. The order was based on the absence of a building permit.
An application was submitted, but although it was not expressly denied,
a permit was never issued.
Metalclad, supra note 97, at ¶ 108.
202
Id.
203
The only public purpose doctrine that would be relevant in Biloune would be along the
lines of a State’s legitimate and justifiable exercise of its police powers. Regulatory
considerations touching upon health, safety and public welfare were not at issue in that
proceeding.
204
Biloune, supra note 202, at 207.
EAST\64724221. 378
was limited to determining the extent to which Ghanaian governmental
authorities exercised measures preventing the investor from pursuing the
hospitality renovation effort.205 The Biloune factual configuration,
together with the tribunal’s actual analysis, suggests that the dispute was
framed as a contractual dispute only having at issue whether the
expropriation clause in the operative concession contract applied to an
indirect expropriation.206 This narrow framing of the issues meaningfully
invited an “effects test” analysis that only warranted examination of two
sets of issues. First, whether as a matter of international law a distinction
may be drawn where a government may indirectly expropriate the subject
matter of a contract with a foreign investor that cannot be directly
expropriated pursuant to positive law.207 Second, whether, when analyzed
together, the Stop Work Order, the investor’s reliance on
representations,208 the arrest, the detention, and the deportation of the
205
The Biloune Tribunal found that “[g]iven the central role of Mr. Biloune in promoting,
financing and managing MDCL, his expulsion from the country effectively prevented
MDCL from further pursuing the project. In the view of the Tribunal, such prevention of
MDCL from pursuing its approved project would constitute constructive expropriation of
MDCL’s contractual rights in the project and, accordingly, the expropriation of the value
of Mr. Biloune’s interest in MDCL unless the Respondents can establish by persuasive
evidence sufficient justification for these events.” Id. at 210.
The Tribunal did not find the government’s evidence concerning the arrest and
deportation of Mr. Biloune to be credible. More importantly, the Biloune award does
reflect that the issue of the extent to which a State may legitimately and justifiably
exercise its police powers to the detriment of a foreign investment-investor was ever
raised or even considered. The term “a State’s police power” does not appear anywhere
in the Biloune award.
206
Id. at 206.
207
Id.
208
In contrast with the representations upon which the investor in Metalclad relied, in
Biloune, the investor relied on representations of a “long-term leaseholder of the
premises” as well as those advanced by “an experienced government-affiliated entity.”
Consequently, the much-vaunted estoppel argument that the Tribunal underscores in
Metalclad is not comparable to the factual configuration of the representations
constituting the estoppel argument applied in Biloune. Id. at 208.
Also distinguishable from Metalclad is the legal status of the permit denial. In Metalclad,
the denial was deemed to be of no moment because the Municipality had limited
jurisdiction as to the content of a construction permit as it could only pass on physical
defects or engineering flaws, neither of which were at issue. The Biloune Tribunal in
contrast, acknowledged that “[w]hile the letter of the law, as pleaded by the Respondents,
supports the contention that extension works of the character contemplated cannot go
forward without a permit—or, if they did, would be subject to fine or demolition—
nevertheless, the practice with regard to this site indicates an exception to the rule.” Id.
Biloune is distinguishable from Metalclad even on fundamental technical issues
concerning estoppel and the legal status of the permit at issue.
EAST\64724221. 379
primary investor without possibility of reentry constitutes an indirect or
regulatory expropriation.
A salient distinction between Biloune and Metalclad that directly
influenced the tribunal’s analysis concerns the absence of any underlying
bilateral investment treaty.209 The Metalclad tribunal’s failure to consider
this rudimentary issue will remain enigmatic.
While Article 15 of the GIC Agreement that claimant signed was
broad in providing for arbitration of “[a]ny dispute between the foreign
investor and the government in respect of an approved enterprise,” and
contained language protecting against expropriation, the Biloune tribunal
observed that its “competence is limited to commercial disputes arising
under a contract entered into in the context of Ghana’s Investment
Code.”210 Indeed, unlike Metalclad—where public international law
applied—in Biloune the rights and obligations of the Parties were
governed by the laws of Ghana.211 Moreover, the dispute was configured
strictly within the framework of a private international law contract
dispute. To the extent that the tribunal applied principles of customary
international law, (i) these precepts were limited to a claim for
expropriation only, and (ii) the tribunal studiously observed that “there is
no indication that Ghanaian law diverges on the central issue of
expropriation from customary principles of international law.”212
The Metalclad tribunal’s construction of the NAFTA’s Article
1110 indirect expropriation language and its wholesale inclusion of the
Biloune analysis based upon presumptively “similar pertinent facts” leaves
much to be desired.213 The analysis of the NAFTA’s Article 1110 failed to
209
The claimant, Antoine Biloune, Syrian national, executed an agreement with the
Ghana Investments Centre that included an arbitration clause and referred to the
UNCITRAL arbitration rules. Id. at 202.
210
Id. at 203.
211
Article 24 of the GIC Agreement required the Tribunal to “constru[e]” the Agreement
“according to the laws of Ghana.” The Parties, however, did not draw on the law of
Ghana as to the construction of the Agreement and the Tribunal relied on principles of
customary international law in adjudicating the expropriation claim. Id. at 207.
212
Id.
213
The Metalclad Tribunal did not observe that the Biloune analysis was undertaken
within the context of a commercial contractual dispute pursuant to which the application
of a “effects test” without more, along with reliance on the contractual defense of
estoppel were sufficient in order to harmonize competing interests arising between
foreign investment protection and a Host State’s exercise of its regulatory authority. Its
unqualified adoption of the Biloune’s tribunal’s “effects test” and estoppel argument
presents conceptual challenges because of the meaningful distinguishing elements that
separate the cases, among the most significant of which is the non-application of
EAST\64724221. 380
consider any fact or factual inference that would have triggered a public
purpose exception as prescribed in paragraph one, subsection (a). By
omitting even reference to this pivotal element, the tribunal carved out of
Article 1110(1) an important criteria for any indirect expropriation
analysis. In so doing it misapprehended the workings of Chapter Eleven
generally and Article 1110 in particular. Disavowing the public purpose
doctrine in its entirety in the context of an indirect expropriation analysis
frustrates the workings of Article 1110 and unduly advantages a
prospective claimant. Similarly, the failure to apprehend the commercial
context in which Biloune was decided, with jurisdiction based on an
Agreement between a private individual and a State and not between two
sovereigns, and lacking countervailing public purpose considerations
attendant to the protection of health, life, and the environment, is equally
disconcerting.214 The exclusion of these considerations is conducive to
international conventional law. The Metalclad’s tribunal recitation on this point merits
citation in its entirety:
The Tribunal found that an indirect expropriation had taken place
because the totality of the circumstances had the effect of causing the
irreparable cessation of work on the project. The Tribunal paid
particular regard to the investor’s justified reliance on the government’s
representations regarding the permit, the fact that the government
authorities knew of the construction for more than one year before
issuing the Stop Work Order, the fact that permits had not been
required for other projects and the fact that no procedure was in place
for dealing with building permit applications. Although the decision in
Biloune does not bind this Tribunal, it is a persuasive authority and the
Tribunal is in agreement with its analysis and its conclusion.
Metalclad, supra note 97, at ¶ 108 (emphasis supplied).
214
In the vacature proceeding that Mexico initiated before the Supreme Court of British
Columbia, the Court found that the Metalclad tribunal had placed undue reliance on
Biloune. Even though the Supreme Court of British Columbia did not raise the industry
sector differences (operation of a hazardous waste landfill facility in contrast with
renovation of a hotel and restaurant) it did note:
There are substantial differences between the situation in the present
case and the circumstances in Biloune. The main two distinctions are
that in Biloune (i) the building was partially destroyed and then closed
by government officials, and (ii) the investor was deported from the
country and was not allowed to return. Apart from the Ecological
Decree [which the arbitral tribunal did not rely on and only commented
hypothetically with respect to it], the circumstances in the present case
fall considerably short of those in Biloune and it would not logically
follow that Biloune could be an independent basis for concluding that
the actions in this case prior to the issuance of the Decree amounted to
an expropriation.
Metalclad Corp., 2001 BCSC 664, at ¶ 80 (2001).The Supreme Court of British
Columbia additionally Stated that it did not agree with the Metalclad Tribunal’s approach
of considering the Ecological Decree but not relying on it. Id. at ¶ 81. The Court
EAST\64724221. 381
penalizing States for having legitimately and justifiably exercised their
sovereignty. It swings the pendulum of symmetry and bilateralism too far
in favor of capital-exporting States without contributing countervailing
doctrinal tenets that could justify the occasionally asymmetrical analysis.
Metalclad’s “effects test” hardly enriches the NAFTA’s decisional
law concerning direct or indirect nationalization or expropriation.
Application of an “effects test” without reference to countervailing State
interests has the effect of rigidly halting a pendulum at an extreme far
from equipoise. Conceptually the approach fails to account for the
underlying policies of the NAFTA that, at least aspirationally, seek to
further the interests of both home and Host States. A consequence of the
Metalclad analysis is to introduce into the public purpose jurisprudence of
the NAFTA a narrow and rigid methodology that is indistinguishable—as
the Tribunal’s reliance on Biloune demonstrates—and impervious to the
legitimate interests of Host States, while unduly enshrining a subjective
standard in the form investor expectation. Analysis of an expropriation
under public international law commands more than the application of
basic commercial contract principles.
3.
Revisiting Methanex Through the Prism of the Public
Purpose Doctrine
Conceptually, decisional law or the jurisprudence of the NAFTA
with respect to the public purpose doctrine should be conducive to
certainty, predictability, uniformity and transparency. This expectation, at
minimum from the point of departure of the NAFTA’s doctrinal
development, is further encouraged because tribunals are bound by official
interpretive Statements offered by the NAFTA,215 but are not subject to
judicial review in the NAFTA Parties’ courts.216 The jurisprudence should
seek to harmonize likely conflicts between international investment law
and the public policy trade objectives of the NAFTA. Decisional law
would serve to reconcile the competing interests attendant to foreign
specifically concluded that the Metalclad Tribunal “used an incorrect tense in the Award
when it Stated that it considered that the implementation of the Ecological Decree would,
in and of itself, constitute an act tantamount to expropriation, it is clear from another
passage of the Award that the Tribunal considered that the implementation of the Decree
did constitute expropriation. In the second paragraph preceding the misuse of the future
tense, the Tribunal Stated that the Decree had the effect of barring forever the operation
of the landfill.” Id. at ¶ 83 (emphasis in original).
215
See NAFTA, supra note 18, art. 1131 ¶ 2.
216
See, e.g., Vicki Been & Joel C. Beauvais, The Global Fifth Amendment? NAFTA’s
Investment Protections and the Misguided Quest for an International “Regulatory
Takings” Doctrine, 78 N.Y.U. L. Rev. 30 n.117 (2003) (stating that “the tribunals are not
bound by stare decisis and are not subject to centralized appellate review.”).
EAST\64724221. 382
investment protection and a sovereign’s rightful use of its regulatory
space. A re-characterization of this latter tension would be to suggest that
more generally the decisional law of treaty-based international arbitration
should serve to ameliorate the conflicting investor-state interests that
distinctly separate home and Host States. Regrettably, despite the many
helpful public purpose features of the NAFTA, the NAFTA jurisprudence
remains plagued by the dysfunctional contributions of a legacy public
purpose doctrine. This decisional law is lacking in objective criteria,
properly defined exceptions, applicable burdens of proof, and a holistic
“proportionality” approach susceptible to consistent and transparent
application.217 Metalclad also represents the current juridical disarray that
leads to “all or nothing” results. Effects tests must be applied in the
context of a tempered public purpose doctrine that could lead to a
reasonable and proportionality driven result.
I.
The Methanex Approach and a Swing of the Pendulum
The Metalclad tribunal at best diminished the role of the public
purpose doctrine as a defense or a mitigating factor in an indirect
expropriation or regulatory taking, and at worse stands for a
pronouncement of the doctrine’s irrelevancy when raised in specific
factual scenarios. Put simply, the public purpose doctrine in Metalclad
played no role in determining whether (i) a regulatory expropriation
occurred and (ii) the issuance and extent of compensation.218 Poles apart
from an approach minimizing or altogether foreclosing consideration of
the public purpose doctrine, the tribunal in Methanex219 rejected claims
premised on violations of Article 1102 (National Treatment)220, Article
1105 (Minimum Standard of Treatment),221 and Article 1110
217
As shall be examined, the current status of the “proportionality test” enunciated in the
NAFTA jurisprudence is wanting in numerous respects including uniformity in its
application and rigor as to its most fundamental elements.
218
See Alberto R. Salazar V, NAFTA Chapter Eleven, Regulatory Expropriation, and
Domestic Counter-Advertising Law, 27 ARIZ. J. INT’L. & COMP. L. 31, 67 (2010)
(observing that Metalclad “remains important in the context of the uncertainties
associated with the inconsistencies in the current State of Chapter 11 jurisprudence, the
public purpose was not a determinant factor in establishing a regulatory expropriation and
the tribunal thus found the government liable for expropriation.”).
219
Methanex, supra note 171.
220
Id. at Part IV-B ¶¶ 29, 38 (asserting that the legislation at issue was not discriminatory
and therefore legitimately needing a public purpose).
221
Id. at Part IV-C ¶ 27..
EAST\64724221. 383
(Expropriation and Compensation),222 in considerable measure based upon
the scope of the legacy public purpose doctrine.
Understandably the Methanex case has given rise to considerable
commentary.223 At the time of its filing, the Methanex dispute was viewed
as a possible landmark case with far-reaching policy implications in the
realm of public safety, health and environmental regulations.224 For
present purposes, the Methanex story need not be told anew, nor is a
detailed recitation of its many procedural reincarnations necessary during
the course of its protracted life.225 Some background, however, is
necessary.
Methanex Corporation (“Methanex”), as a Canadian corporation
and investor, brought an action against the United States of America (The
United States or “The U.S.”) pursuant to Article 716(1) of the NAFTA
with claims fundamentally based on the alleged breach by the U.S. of two
provisions in Section A of Chapter Eleven of the NAFTA: Article 1105(1)
and Article 1110(1).226 It premised its claims on the production and sale of
222
Id. at Part IV-D ¶ 15.
223
See, e.g., Salazar, supra note 220; Kara Dougherty, Methanex v. United States: The
Realignment of NAFTA Chapter Eleven with Environmental Regulation, 27 NW. J. INT’L
L. & BUS. 735 (2006); Jessica C. Lawrence, Chicken Little Revisited: NAFTA Regulatory
Expropriations After Methanex, 41 GA. L. REV. 261 (2006); Vicki Been & Joel C.
Beauvais, The Global Fifth Amendment? NAFTA’s Investment Protections and the
Misguided Quest for an International “Regulatory Takings” Doctrine, 78 N.Y.U. L. REV.
30 (2003); Marisa Yee, The Future of Environmental Regulation After Article 1110 of
NAFTA: A Look After the Methanex and Metalclad Cases, 9 HASTINGS W.-NW. J. ENVT’L
L. & POL’Y 85 (2002); Lucien J. Dhooge, The Revenge of the Trail Smelter:
Environmental Regulation As Expropriation Pursuant to the North American Free Trade
Agreement, 38 AM. BUS. L.J. 475 (2001); Frederick M. Abbott, The Political Economy of
NAFTA Chapter Eleven: Equality Before the Law and the Boundaries of North American
Integration, 23 HASTINGS INT’L & COMP. L. REV. 303 (2000).
224
Methanex rightfully has been distinguished as meaningfully contributing to a
transparent dispute resolution regime. See, e.g., Howard L. Mann, The Final Decision in
Methanex v. United States: Some New Wine in Some New Bottles, 3 TRANSNAT’L DISP.
MGMT. (Dec. 2006). This recognition is well-justified. The manifold richness of the
opinion in addressing trilateral parties, deftly adjudicating the extent to which domestic
regulations concerning public health, safety and the environment may affect international
law protecting foreign investors, exploring the conceptual role of amici curiae, and
finally, addressing the privacy/confidentiality dichotomy, is noteworthy.
225
Methanex’s claim was first advanced in its Statement of Claim dated December 3,
1999. The final award of the Tribunal on Jurisdiction and Merits issued August 3, 2005.
Emphasis of its general configuration, however, will help define the workings of the
public purpose doctrine within the case, and more generally the post-Methanex effect that
the doctrine has within the NAFTA and its jurisprudence.
226
Methanex, supra note 171, at Part I-Preface ¶ 2.
EAST\64724221. 384
a methanol-based source of octane and oxygenate for gasoline that is
known as methyl-tertiary-butyl ether (“MTBE”). Specifically, Methanex
averred that MTBE was a safe, effective, and economical component of
gasoline, and the oxygenate of choice “in markets where free and fair
trade is allowed.”227 The claimant also alleged that MTBE generated
environmental benefits and did not at all pose a risk to human health or the
environment.228 Methanex further claimed that it neither produced nor sold
MTBE, but rather only engaged in the limited business of the production,
transportation, and marketing of methanol,229 a key ingredient for the
production of MTBE. Central to Methanex’s position was the contention
that (i) no methanol production plants were located in California, and (ii)
during the period 1993-2001 only a fraction of the methanol directly
consumed in California was produced anywhere in the United States (an
average of 20.2 thousand metric tons out a total consumption figure of
185.5 thousand metric tons).230 It advanced the contention that the State of
California’s ban on the sale and use of MTBE caused it to suffer
significant losses.231
Because the case was properly viewed as a seminal decision with
far-reaching policy implications touching upon public safety, health, and
environmental regulations, the International Institute for Sustainable
Development (“the Institute”) was the first of four NGOs to file a petition
for amicus curiae status asserting an argument in favor of a Host State’s
227
See id. at Part II-Ch. D ¶ 2.
228
Id.
229
Id. at Part II-Ch. D ¶ 3.
230
Id. at Part II-Ch. D ¶ 4. In the proceeding it was uncontested that Methanol is the
essential oxygenating element of MTBE.
231
See id. at Part I-Preface ¶ 2. Methanex ultimately challenged three legislative texts:
(i) the 1999 California Executive Order certifying that, “On balance,
there is significant risk to the environment from using MTBE in
gasoline in California”;
(ii) California Code of Regulations Title Thirteen, §§2273 requiring
gasoline pumps containing MTBE to be labeled in California as
follows: “contains MTBE. The State of California has determined that
use of this chemical presents a significant risk to the environment.”
§§2262.6 provided at sub-section (a)(1) that: starting December 31,
2002, no person shall sell, offer for sale, supply or offer for supply in
California gasoline which has been produced with the use of methyltertiary-butyl ether (MTBE)”; and
(iii) Amended California Regulation of May 2003, expressly banning
the use of methanol as an oxygenate in California.
Id. at Part II-Ch. D ¶¶ 14-23
EAST\64724221. 385
proper exercise of regulatory sovereignty in furtherance of the public
welfare with respect to health, safety, and environmental objectives,
applied on a non-discriminatory basis.232 The NGOs further advanced that
under no analysis can such regulations be construed as violating
international law and that they probably pertain to a Host State’s
prerogative within its regulatory space.233 Two additional precepts on
which the Institute predicated its petition were (i) that the interpretation of
Chapter Eleven of NAFTA should reflect legal principles underlying the
concept of sustainable development,234 and (ii) “that participation of an
amicus would allay public disquiet as to the closed nature of arbitration
proceedings under Chapter Eleven of NAFTA.”235
The Methanex tribunal’s analysis of Claimant’s Article 1110
(Expropriation and Compensation) claim is most eloquent in underscoring
the normative and substantive differences between the Metalclad and
Methanex tribunals with respect to the public purpose doctrine within the
NAFTA. In sharp relief with Metalclad, the Methanex tribunal observed
that the regulation at issue did not give rise to a case for a direct or indirect
nationalization or expropriation within the framework of Article 1110. The
tribunal specifically observed:
In this case, there is no expropriation decree or creeping
expropriation. Nor was there a ‘taking’ in the sense of any
property of Methanex being seized and transferred in a
single or a series of actions, to California or its designees.
Insofar as Methanex can make a claim under Article
1110(1) it is not a claim for nationalization or
232
Petitions eventually were filed by (i) The International Institute for Sustainable
Development, (ii) Communities for a Better Environment, (iii) The Bluewater Network
of Earth Island Institute and, (iv) The Center for International Environmental Law. Id. at
Part II-Ch. C ¶ 26.
233
See Methanex v. United States of America, Petitioner’s Final Submission Regarding
the Petition of the International Institute for Sustainable Development to the Arbitral
Tribunal for Amicus Curiae Status, ¶¶ 10-18 (Oct. 16, 2000) available at
http://www.iisd.org/pdf/methanex_petition_oct162000.pdf [hereinafter Methanex Amicus
Curiae Submission]; see also, Methanex v United States, Decision of the Tribunal on
Petition from Third Persons to Intervene as “Amici Curiae,” ¶ 5 (Jan. 15, 2001) available
at http://www.iisd.org/pdf/methanex_tribunal_first_amicus_decision.pdf (The Institute’s
Petition sought leave “(i) to file an amicus brief preferably after reading the Parties’
written pleadings, (ii) to make oral submissions, (iii) to observe status at oral hearings.”).
234
The principle of sustainable development is explored at length infra at Chapter 2 in the
context of what collectively is referred to as “the UNCTAD documents,” infra Chapter 3
in connection with the African Charter on Human and Peoples’ Rights, and again infra at
Chapter 4 in the context of public purpose in BITs.
235
See Methanex Amicus Curiae Submission, supra note 235.
EAST\64724221. 386
expropriation, simpliciter, but for ‘measures tantamount to
expropriation’. Thus, Methanex must establish that the
California ban was tantamount to an expropriation within
the meaning of Article 1110 in NAFTA.236
The tribunal’s fundamental organizing principles can be found in
both (i) its demonstration that the California ban was “tantamount to an
expropriation” within the ambit of Article 1110 of the NAFTA, and (ii)
the element of public purpose within the operative legal standard.
Quite predictably, the Methanex claimants sought analytical and
conceptual support in Metalclad’s definition of expropriation. Claimants
reiterated that standard in the following terms:
…expropriation under NAFTA includes not only open,
deliberate, and acknowledged takings of property, such as
outright seizure or formal or obligatory transfer of title in
favor of the Host State, but also covert or incidental
interference with the use of property which has the effect of
depriving the owner, in whole, or in significant part, of the
use of reasonably-to-be-expected economic benefit of
property even if not necessarily to the obvious benefit of the
Host State.237
This definition of expropriation within Article 1110 is wholly bereft of the
words “public purpose.” It is effects-based and mostly invites a narrow
analysis limited to scrutiny of the relationship between the claimant and
the property at issue. Similarly, pursuant to the Metalclad tribunal’s
definition of expropriation within Article 1110, the subject matter of the
taking, expropriation, or nationalization is not described in terms of
investment nor was the claimant framed as an investor.238
Far from embracing whole cloth the Metalclad standard, the
Methanex tribunal merely reduced the definition to a single element of a
direct or indirect expropriation or nationalization. In this connection, it
noted that “Metalclad is correct that an intentionally discriminatory
236
Methanex, supra note 171, at Part IV-Ch. D ¶ 6 (emphasis supplied).
237
Id. at Part IV-Ch. D ¶ 4 (citing Metalclad, supra note 97, at ¶ 103) (emphasis in
original).
238
The absence of these terms of art (investment and investor), particularly within the
context of Chapter 11, an investment chapter, emphasizes an expansive claimant oriented
approach and incident policy. Investor and investment status are significant jurisdictional
predicates that must be met upon penalty of the claim’s dismissal. As such a definition of
expropriation de-emphasizes central jurisdictional defenses suggests a diminished role for
the Host State.
EAST\64724221. 387
regulation against a foreign investor fulfills a key requirement for
establishing expropriation.”239 The tribunal, however, advanced a
conceptually different corollary to Metalclad’s definition that is
doctrinally closer to the NAFTA’s Article 1110 (Expropriation and
Compensation) and premised on public purpose considerations:
…as a matter of general international law, a nondiscriminatory regulation for a public purpose, which is
enacted in accordance with due process and, which affects,
inter alias, a foreign investor or investment is not deemed
expropriatory
and
compensable
unless
specific
commitments had been given by the regulating government
to the then putative foreign investor contemplating
investment that the government would refrain from such
regulation.240
The “Methanex corollary” literally tracks the four elements to an
indirect or direct nationalization or expropriation contained in Article
1110:241 (i) public purpose; (ii) non-discriminatory treatment; (iii) due
process of law; and (iv) the payment of compensation. Moreover, the term
of art “foreign investor or investment” is used to accentuate jurisdictional
technical requirements.242
In addition, the Methanex Tribunal further buttressed the standard
for expropriation under Article 1110 by borrowing from the Feldman v
Mexico award:
The regulatory action has not deprived the Claimant of
control of his company,… interfered directly in the internal
operations… or displaced the Claimant as the controlling
shareholder. The claimant is free to pursue other
continuing lines of business activity…. Of course, he was
effectively precluded from exporting cigarettes…. However,
239
Methanex, supra note 171, at Part IV-Ch. D ¶ 7.
240
Id. (emphasis supplied).
241
See NAFTA, supra note 18, art. 1110.
242
The treaty-based arbitration decisional law finding that a tribunal lacks jurisdiction
based upon failure to meet the investor or investment predicates. See, e.g. See, e.g. Salini
Costruttori SpA and Italstrade SpA v. Morocco, ICSID Case No. ARB/00/4, Decision on
Jurisdiction, ¶ 52 (July 23, 2001), 14 ICSID Rep. 306 (2010) (“The doctrine generally
considers that investment infers: contributions, a certain duration of performance of the
contract and a participation in the risks of the transaction...In reading the [ICSID]
Convention’s preamble, one may add the contribution to the economic development of
the Host State of the investment as an additional condition.”).
EAST\64724221. 388
this does not amount to Claimant’s deprivation of control
of its company.243
Consequently, under the Methanex public purpose rubric, a regulatory
measure tantamount to an expropriation, let alone a direct or indirect
expropriation or nationalization, in addition to an absence of (i) due
process of law, (ii) public purpose, and (iii) non-discriminatory practice,
also must establish that the investor was deprived of shareholder
controlling status or control of the investment at issue. This “control” test
continues to wander the corridors of conceptual development of public
international law without finding definitive doctrinal repose in any
quarter.244
In holding that the California ban did not constitute a measure
tantamount to an expropriation,245 the public purpose doctrine was
accorded a preeminent status in the award’s architecture.246 Indeed,
243
Methanex, supra note 171, at Part IV-Ch. D ¶ 16 (citing Fireman’s Fund Insurance
Co. v. United Mexican States, ICSID Case No. ARB (AF)/02/01, Award ¶ 152 (July 17,
2006)).
244
See Steven R. Ratner, Regulatory Takings in Institutional Context: Beyond the Fear of
Fragmented International Law, 102 AM. J. INT’L L. 475, 484 (2008) (“The control test is
notably subject to multiple interpretations. Some have attempted to find the silver bullet
that will reconcile the cases and serve as a guide for the future, including by emphasizing
the intent of the State and the distinction between State takeover of property and mere
regulation of its use. Others have eschewed a simple solution.”) (footnotes omitted).
245
The award as to this point, Article 1110(1), reads:
For the reasons elaborated here and earlier in this Award, the Tribunal
concludes that the California ban was made for a public purpose, was
non-discriminatory and was accomplished with due process. Hence,
Methanex’s central claim under Article 1110(1) of expropriation under
one of the three forms of action in that provision fails. From the
standpoint of international law, the California ban was a lawful
regulation and not an expropriation.
Methanex, supra note 171, at Part IV-Ch. D ¶ 15.
246
Methanex framed its cornerstone expropriation claim on four premises that sought to
meet the Article 1110 exceptions:
317. First, a substantial portion of Methanex’s investments, including
its share of the California and larger U.S. oxygenate market were taken
by facially discriminatory measures and handed over to the domestic
ethanol industry. Such a taking is at minimum “tantamount… to
expropriation” under the plain language of Article 1110.
318. Second, these measures were not intended to serve a ‘public
purpose’ as is required by Article 1110(a), but rather were primarily a
mechanism for seizing Methanex’s U.S.’s and Methanex Fortier’s share
EAST\64724221. 389
although not expressly mentioned in the Article 1110(1) analysis, the
tribunal’s factual foundations concerning the Host State’s legitimate and
appropriate exercise of its sovereignty pursuant to the issuance of a
of the California oxygenate market and handing it directly to the
domestic ethanol industry.
319. Third, the discriminatory nature of the measures fail to meet the
requirement of Article 1110(c)that they comply with ‘due process of
law and Article 1105(1).’
320. Finally, Methanex has not been compensated for the harms it has
suffered as a result of these measures.
Id. at Part IV-Ch. D ¶ 3 (citing Second Am. Claim, ¶¶ 317-320). The Tribunal fashioned
five arguments that addressed Methanex’s averments.
First, it asserted that Respondent, the United States, never communicated false
representations to Methanex upon which Methanex relied to its detriment. To the
contrary, the tribunal emphasized that:
Methanex entered a political economy in which it was widely known, if
not notorious, that governmental, environmental and health protection
institutions at the federal and State level, operating under the vigilant
eyes of the media, interested corporations, non-governmental
organizations and a politically active electorate, continuously
monitored the use and impact of chemical compounds and commonly
prohibited or restricted the use of some of those compounds for
environmental and/or health reasons.”
Id. at Part IV-Ch. D ¶ 9. Second, because Methanex did not rely on any representations
purporting to State that a ban would not issue, the tribunal distinguished its case from that
of Revere Copper & Brass, Incorporated v. Overseas Private Investment Corporation
(OPIC), Am. Arb. Ass’n (Aug. 24, 1978), 17 I.L.M. 1321 (1978). See Methanex, supra
note 171, at Part IV-Ch. D ¶ 10.
Third, Methanex’s averments that, the process pursuant to which the California ban was
enacted was corrupted by contributions to then Lieutenant Governor, later Governor
Davis, were found devoid of any record evidence. Id. at Part IV-Ch. D ¶ 11.
The tribunal noted that California’s governor “followed the protocol established in
California Senate Bill 521 [and that] there is no indication in the record that he varied
from it in any way.” Id. at Part IV-Ch. D ¶ 12. Thus, the tribunal reasoned that “[t]he
terms of Governor Davis’s Executive Order and subsequent action by the State of
California are inconsistent with Methanex’s contention that the California ban was
designed to transfer the gasoline oxygenate market to ethanol.” Id.
Fifth and finally, the operative factual timeline before the tribunal led it to conclude that
Methanex’s factual submissions are inconclusive because they rely, as Methanex
admitted, on inferences. The tribunal observed that “where the time-line of California
Senate Legislation, scientific study, public hearing, executive order and initiative to
secure an oxygenate waiver are all objectively confirmed, the argument for resorting to
inference as a way of reaching a conclusion inconsistent with the objective evidence is
untenable.” Id. at Part IV-Ch. D ¶ 14.
EAST\64724221. 390
legislative enactment was directly related to its adoption of the University
of California’s Report.247 The award’s emphasis on the scientific evidence
and detailed factual findings concerning the relationship between this
evidence and health and the environment, reflects considerable concern for
the public purpose doctrine generally, and in particular the orthodox
GATT Article XX international trade law exceptions. The Methanex
tribunal, however, does not at all frame this penchant in the language of
public international law principles. It notably does not undertake any
sustained analysis that sets forth a standard or otherwise suggests the basis
of the public purpose doctrine’s primacy in relation to the countervailing
foreign investor investment law protections. In this regard, the analysis
deftly limits itself merely (i) to rephrasing three of the NAFTA’s Article
1110 exceptions and (ii) emphasizing the want of representations
concerning the California ban on which the claimant did not rely. The
paucity of language on this point is profoundly disconcerting. It leaves the
parties, future tribunals, and commentators without any sense of standard,
doctrinal guidepost, or specific policy issues that may serve as either
instructive precedent or a principle that meaningfully contextualizes
competing interests, particularly in the wake of the Metalclad award.
A more subtle but equally eloquent indicator of the considerable
weight that the tribunal accorded to a State’s traditional police powers or
public doctrine is found in its very analysis of the NAFTA’s Article
1101(1),248 which the tribunal indicates “is not assisted by [Methanex’s]
arguments under Article 1110.”249 The sufficiency of Methanex’s claim
rested on the extent to which it could demonstrate the requisite legal
connection between the 1999 California Executive Order, the 2000
California Regulations, and its investments, evinced California’s intent to
harm the specific class of foreign methanol producers, including
Methanex.250
247
As part of California Senate Bill 521, enacting the MTBE Public Health and
Environment Protection Act of 1997, directed the University of California to conduct
research on the effects of MTBE. The University of California Report comprised five
volumes, 600 pages that constituted seventeen separate papers compiled by over sixty
researchers. Id. at Part III-Ch. A ¶ 3.
Among other findings, the University of California Report recommended “a full
environmental assessment of any alternatives to MTBE in Ca. RFG2, including the
components of Ca. RFG2 itself, before any changes are made in California State law.” Id.
at Part III-Ch. A ¶ 14.
248
NAFTA, supra note 18, art. 1101 ¶ (1).
249
Methanex, supra note 171, at Part IV-Ch. D ¶ 18.
250
The Tribunal framed the jurisdictional issue as “whether the two U.S. measures
‘relate’ to Methanex as an investor or its investments within the meaning of Article
1101(1)(a) and (b) in NAFTA.” Id. at Part IV-Ch. E ¶ 2.
EAST\64724221. 391
The Methanex tribunal construed the “relating to” predicate in
Article 1101(1)251 as consisting of an “effects plus” test that “signifies
something more than the mere effect of a measure on an investor or an
investment in that it requires a legally significant connection between
them.”252 This construction of the “relating to” element of Article 1101(1)
provides a Home State with considerable defenses in establishing that a
particular regulatory measure could not have “related to” a particular
investor or investment, without placing the burden on a claimant to
demonstrate intent or another iteration of scienter. From an evidentiary
perspective, establishing specificity of this nature with respect to intent is
just as daunting, if not altogether impossible in most circumstances, as
demonstrating intent for purposes of establishing that a particular measure
issued in furtherance of a public purpose. This unremarkable construction
of “relating to” within the meaning of Article 1101(1) is a negative
byproduct of the subjective standard incident to the legacy public purpose
doctrine.253 This stringent standard comports with an expansive view of a
State’s regulatory space. It is conceptually consistent with the standard to
conclude that a measure does not relate to an investor or investment where
its effect on public health or the environment is scientifically sound, as
was the case in Methanex.254
The proposition that scientific evidence negates the legal
requirement for meeting the “relating to” stricture in Article 1101(1) is
fundamentally flawed. The scientific soundness of a measure cannot have
the de facto effect of negating effects triggering Article 1101(1)’s “relating
to” stricture. Consequently, the “effects plus test” that the Methanex
tribunal affixed to Article 1101(1) gives rise to a corollary suggesting that
the requisite “relating to” showing is not demonstrable where the measure
at issue rests on legitimate scientific foundations. The consequence of this
reading renders the Article 1101(1) standard insurmountable with respect
to virtually any credible regulatory measure.
251
In relevant part, Article 1101(1) provides that Chapter 11 of NAFTA “applies to
measures adopted or maintained by a party relating to: (a) investors of another Party; (b)
investments of investors of another party in the territory of the Party….” NAFTA, supra
note 18, art. 1101 ¶ (1)(a)-(b).
252
Methanex, supra note 171, at Part II-Ch. E ¶ 3.
253
Indeed, Methanex failed to meet this standard to the tribunal’s satisfaction. Despite the
proliferation of partial awards and analysis in the final award on jurisdiction and merits
consisting of 278 pages, this rudimentary tenet for purposes of Chapter 11 initially was
not even properly averred, and never met. Methanex Corp. v. United States of America,
NAFTA Ch. 11/UNCITRAL, Partial Award, ¶ 147 (Aug. 3, 2005), 7 ICSID Rep. 239
(2012) [Hereinafter Methanex Partial Award].
254
Methanex, supra note 171, at Part IV-Ch. E ¶ 20.
EAST\64724221. 392
The use of the public purpose doctrine in Methanex is unbridled
and detached from the more tempered Statement of the doctrine
throughout the NAFTA treaty framework. Devoid of standard as to
application and equally lacking as to tempering regulatory sovereignty, the
award links the public purpose doctrine with uncertainty and the lack of a
functional standard having predictive value. It becomes clear and more
than just a coincidence that after the Methanex case—the award that
stands as the antinomy to the Metalclad “effects test”—that the public
purpose doctrine appears as the determinative principle that tips the
pendulum almost absolutely in favor of regulatory host-State sovereignty.
The “effects test” in all of its iterations has not redeemed the promise of
tempering regulatory sovereignty.
J.
Beyond Metalclad and Methanex: The NAFTA Jurisprudence
In addition to being conceptually and doctrinally diametrically
opposed on the role of the public purpose doctrine, the Metalclad and
Methanex awards raise many more questions than they could ever aspire
satisfactorily to address. Metalclad and Methanex do not address the new
challenge that the public purpose doctrine must meet. The advent of
economic globalization has given rise to a paradigm of interdependence
that shuns “winner take all” applications and definitions of the public
purpose doctrine.255 The paragon of independence of States has passed.
globalization underscores the shared approach of exploration, exploitation,
and development of resources among States. Short from even suggesting
the need to explore new methodologies in the application of the doctrine,
the Metalclad and Methanex analyses remarkably do not at all reference,
let alone rely upon, the NAFTA’s public purpose standard contained in
Article 1101(4).256 The Article 1101(4) effort to fashion a public purpose
standard or alternatively provide the doctrine with substantive content
within the Chapter Eleven rubric, simply is ignored. Along this same vein,
neither tribunal (Metalclad nor Methanex) even purports to draw upon the
rich and manifold references to public purpose throughout the NAFTA’s
framework beyond just Chapter Eleven.257 The scant but helpful working
papers and drafts prepared by the NAFTA Parties relating to the public
purpose standard or doctrine as well were not referenced in the awards. It
necessarily follows that neither Metalclad nor Methanex at all enriched, or
255
One of the shortcomings of the NAFTA public purpose jurisprudence are the “all or
nothing” results that it has generated. This shortcoming is not unique to NAFTA, but in
fact pervades the entire public purpose doctrine. See infra Conclusion.
256
NAFTA, supra note 18, art. 1101 ¶ 4.
257
See id. art. 721 ¶ 2(b); art. 912 ¶ (b); art. 1015 ¶¶ 4(c), 8(a), 8(i); art. 1017 ¶ 1(j); art.
1019 ¶ 6; art. 1411 ¶ 5(b); art. 1804 ¶ (b).
EAST\64724221. 393
otherwise assisted in clarifying the totality of the NAFTA’s public purpose
workings.
The command in Methanex is both succinct and clear, but equally
disconcerting. A conservative construction of the award suggests that a
direct or indirect expropriation nationalization is not compensable where
the Article 1110 exceptions (the presence of due process, nondiscriminatory, and public purpose) are present so long as the investor did
not rely on false representations on the part of the Host State. This
proposition is neither an uncontroverted principle of public international
law,258 nor conceptually comprehensive in scope. Specifically, it fails to
address whether such a taking is compensable even where the operative
bilateral or multilateral treaty, such as the very NAFTA itself, suggests
otherwise.259 The Article 1110 framework contemplates that a Host State
258
In fact, steps have been taken post-Methanex & Metalclad to make the scope of such
obligations more clear. For example, the 2004 US Model BIT “clarifies that ‘[e]xcept in
rare circumstances, non-discriminatory regulatory actions by a Party that are designed
and applied to protect legitimate public welfare objectives, such as public health, safety,
and the environment, do not constitute indirect expropriations.’” Karen Halverson Cross,
Converging Trends in Investment Treaty Practice, 38 N.C. J. INT’L L. & COM. REG. 151,
191 (2012). Such language should “make it significantly more difficult for investors such
as Metalclad to convince an arbitral tribunal that a regulatory measure, particularly an
environmental protection, health or safety measure, is expropriatory.” Id. (internal
footnotes omitted).
259
Article 1110 in pertinent part provides;
1. No Party may directly or indirectly nationalize or expropriate an
investment of an investor of another Party in its territory or take a
measure tantamount to nationalization or expropriation of such an
investment (“expropriation”), except:
(d) on payment of compensation in accordance with paragraph
2 through 6.
2. Compensation shall be equivalent to the fair market value of the
expropriated investment immediately before the expropriation took
place (“date of expropriation”), and shall not reflect any change in
value occurring because the intended expropriation had become known
earlier. Valuation criteria shall include going concern value, asset value
including declared tax value of tangible property, and other criteria, as
appropriate, to determine fair market value.
3. Compensation shall be paid without delay and be fully realizable.
4. If payment is made in a G7currency, compensation shall include
interest at a commercially reasonable rate for that currency from the
date of expropriation until the date of actual payment.
5. If a Party elects to pay in a currency other than a G7 currency, the
amount paid on the date of payment, if converted into G7 currency at
the market rate of exchange prevailing on that date, shall be no less
EAST\64724221. 394
has an obligation to compensate a foreign investor, without more, as to
any of the following six events: (i) a direct expropriation; (ii) an indirect
expropriation; (iii) a direct nationalization; (iv) an indirect nationalization;
(v) a measure tantamount to a nationalization; and (vi) a measure
tantamount to an expropriation. Nowhere does Article 1110, or Chapter
Eleven of the NAFTA assert that a Host State is relieved from any legal
obligation to issue compensation for a direct or indirect expropriation or
nationalization, or a measure tantamount to a nationalization or
expropriation so long as false misrepresentations with respect to an
investment relied upon by an investor did not issue. This principle does
find support in international law beyond the Methanex tribunal’s
pronouncement.260 The Methanex tribunal, however, hardly explains the
circumstances pursuant to which application of this general principle
trumps the clear command in Article 1110(1). The absence of any analysis
on this issue from a policy perspective mitigates against a very broad
construction of the governing precept in Methanex as an illustration of the
application of the NAFTA Article 1110 for a public purpose.
Because the Methanex tribunal neither defines what constitutes a
public purpose nor explains the Article 1110(1)(d) “compensability issue,”
no conceptual residue remains that would have didactic value for purposes
of illustrating the workings of the public purpose doctrine within the
meaning of the NAFTA’s Article 1110(1) subsections (a) through (d).261
Once the Methanex tribunal accepted the scientific evidence proffered by
the University of California Report, no attention was accorded to
consideration of the benefits and detriments on both the
investor/investment and the public welfare by dint of issuance of a
legislative ban and the Executive Decree. To the contrary, the acceptance
of this scientific evidence proved to be dispositive with respect to (i)
than if the amount of compensation owed on the date of expropriation
had been converted into that G7 currency at the market rate of
exchange prevailing on that date, and interest had accrued at a
commercially reasonable date for that G7 currency from the date of
expropriation until the date of payment.
6. On payment, compensation shall be freely transferable as provided in
Article 1109.
NAFTA, supra note 18, art. 1110.
260
See supra note 260 & accompanying text.
261
See infra Chapter J.1.
EAST\64724221. 395
legitimizing the effects of the measures on the subject investment and (ii)
proscribing compensation.262
The inordinate weight that the Methanex tribunal ascribes to public
purpose generally (not even the public purpose standard)263 has the
doctrinal and conceptual effect of marginalizing all other factors that merit
consideration.264 The pragmatic effect of vesting public purpose with
dispositive status once the scientific legitimacy of the measure at issue has
been legally established is to vest the Host State’s regulatory sphere with
juridically unbridled discretion as to foreign investor/investment
protection. This approach in the context of the NAFTA eviscerates even
the most rudimentary policy objective underlying Chapter Eleven. More
universally beyond the NAFTA, this misapprehension of the public
purpose doctrine:
(i)
(ii)
(iii)
(iv)
(v)
wrests foreign investors of any reasonable hope of
protecting their investments from takings, and even
from
non-compensable
expropriations/nationalizations;
delegitimizes treaty-based arbitrations as a genuine
international dispute resolution methodology that
protects
investors/investments
from
the
parochialism of host-State judiciaries by providing
for a super-national tribunal where public
international law applies;
frustrates the policy tenets of international
investment law that seek to foster enhanced foreign
direct investments;
heightens the tensions between capital-exporting
and capital-importing States by disrupting equipoise
in favor of developing nations to the detriment of
industrialized States;
further deepens an “all or nothing” risk factor in
treaty-based investment arbitrations that is contrary
to pervading principles of economic globalization
and “Globalized sovereignty” that favor viability
sharing frameworks;
262
From a technical perspective the tribunal did not have to reach either of these issues as
it ultimately held that the “relating to” jurisdictional predicate of Article 1101(1) was
never met.
263
See Supra notes 247-48 & accompanying text.
264
Even though it does not so State, the Methanex tribunal, based upon its very analysis,
does not treat the elements of Article 1110 para.1(a)-(d) (Public Purpose, NonDiscriminatory Treatment, Due Process of Law, and Payment of Compensation) as
having to be construed in pari materia.
EAST\64724221. 396
(vi)
(vii)
1.
does not contribute to a rubric that seeks to
harmonize the disparate and often conflicting policy
objectives of international investment law and
international trade law, and;
furthers the distorting effects of treating all
regulatory measures as equal in importance with
respect to public purpose.265
The Public Purpose Legacy of Metalclad and Methanex
While Metalclad enshrined the effects on the investment to the
detriment of the relevant regulatory measure, Methanex embraces the
measure wholesale without inquiry into its bona fide nature or its effects
on the investor/investment. The consequences of government regulations
on the investor/investment are of little to no moment when viewed through
the prism of a Methanex analysis.
Whether read together or separately, Metalclad and Methanex cast
considerable doubt on the extent to which treaty or contract provisions
proscribing regulatory expropriations have any practical effect. Neither
case contributes to the decisional law on the narrow issue of the
relationship between compensability and public purpose in the context of
direct or indirect expropriations or nationalizations. Indeed, both
Metalclad and Methanex cloud these issues.266 Is there a defined standard
of proof to which investor States, Host States, and arbitral tribunals must
be sensitive and should apply concerning the assessment of a regulatory
measure and its effects on foreign investors/investments?267 Despite more
265
As is suggested in considerable detail in this text, see infra Chapter 4, health, life,
safety, measures as to plant, animal and human life, vary in importance, as well as
exigency. The same, so the argument here advanced says, holds true for environmental
measures. Measures that seek to conserve and preserve are materially different as to
remediation and mitigation issues together with triggering exigency. It is therefore
unclear why these exceptions would be treated the same and accorded identical normative
standing.
266
See supra Chapter 1.H & 1.I.
267
While the Methanex tribunal referenced, but did not define, “burden of proof,”
Methanex, supra note 171, at Part IV-Ch. B ¶ 9, neither the Methanex nor the Metalclad
tribunals spoke to an applicable standard of proof in evaluating “effects” on investments
or “the nature of a particular regulatory measure” characterized as an expropriation,
nationalization, or a measure tantamount to an expropriation or nationalization. Here too,
a considerable lack of rigor is demonstrated by both the Methanex and Metalclad
tribunals, and as shall be established, it is a shortcoming that pervades the NAFTA
jurisprudence and the decisional-law of treaty-based investor-State arbitration.
Read together, Metalclad and Methanex certainly provide a normative foundation for the
development of a “proportionality test,” but neither tribunal examines the legal space of
mitigation that suggests that “less intrusive measure” analysis is warranted in managing
competing investor and Host State interests. The availability of less restricting measures
EAST\64724221. 397
moderate and balanced approaches, the “NAFTA Jurisprudence” does not
satisfactorily address these issues. They remain witnesses to an
impoverished legacy public purpose doctrine that has been incorporated
by ad hoc tribunals into different tests that fail to address the foundational
queries that the public purpose doctrine comprehensively must be able to
address if it is to reconcile the competing interests of investor States and
Host States in an era of economic globalization.
2.
A
Broader
Examination
of
The
NAFTA’s
Jurisprudence and Other Investor-state Decisional
Law: In Search of a Viable Public Purpose Framework.
The NAFTA’s decisional law addressing the public purpose
doctrine primarily in the context of a direct or indirect expropriation or
nationalization or regulatory measures tantamount to an expropriation is
internally inconsistent and doctrinally in disarray.268 The Metalclad and
Methanex awards serve as prime examples.269 The “foundational NAFTA
is not wholly segregated from consideration of the extent to which a measure is bona fide
or of whether the measure at issue is an effective one. Scrutiny of the efficacy of a
government measure or of its effectiveness or place on a scale measuring least restrictive
means, presents considerable challenges. Most of these obstacles concern access to
government data and premises for decision-making. These obstacles, however, are being
progressively shed. The confluence of access to scientific data and technology has made
it possible for NGO’s and other interested private sector participants to evaluate
regulatory measures purporting to have a scientific foundation and to be able to analyze
efficacy, cost efficiency, and the availability of less restrictive options. Also, although it
is still work in progress, transparency with respect to access to government information
has obtained the unprecedented status of a universal human right. See Case of ClaudeReyes et al. v. Chile, Merits, Reparations and Costs, Judgment, Inter-Am. Ct. H.R. (ser.
C) No. 151, ¶¶ 86-87 (Sept. 19, 2006). Even though much of the practical application of
the principle of transparency as a right remains aspirational and embryonic, on a relative
scale transparency can point to notable objective accomplishments.
268
See Tecmed, supra note 168, at ¶ 115 & n.26 (citing Giorgio Sacerdoti, Bilateral
Treaties & Multilateral Instruments on Investment Protection, in 269 RECUEIL DES
COURS 255, 383, 385-86 (Académie de Droit International de la Haye ed., 1997)). There
is a difference to be drawn between a creeping expropriation and a de facto expropriation
although both typically are classified as within the broader concept of “indirect
expropriation.” To be sure, both types of expropriations may be undertaken pursuant to a
variety of acts that compel case by case examination. Id. at ¶ 116 & n. 27 (citing R.
Dolzer & M. Stevens, BILATERAL INVESTMENT TREATIES 99-100 (Martinus Nijhoff
1995)).
269
The two different and contrasting expropriation compensability rules in Methanex and
Metalclad rightfully deserve to be joined by yet a third paradigm that further contributes
to obfuscate the dispositive standard. In Compañía del Desarrollo de Santa Elena, S.A. v.
Republic of Costa Rica, the award on this issue provided:
Expropriatory environmental measures – no matter how laudable and
beneficial to society as a whole – are, in this respect, similar to any
other expropriatory measures that a State may take in order to
implement its policies: where property is expropriated, even for
EAST\64724221. 398
cases” and other jurisprudence often analyzed together with NAFTA
decisional law such as Tecmed,270 struggle to devise a standard that may
best harmonize the competing investor-state interests, as well as reconcile
international trade and investment law. These efforts, however, fail
because the different “effects test” and “proportionality” standards apply a
fundamentally flawed public purpose doctrine. As shall be examined, it is
the fundamental use of a legacy public purpose doctrine enjoying an
embedded subjective standard that generates the inconsistencies. The
various competing interests and policies pertaining to home and Host
States cannot be harmonized and reconciled merely as a by-product of
awards resulting from ad hoc tribunals applying an ill-defined doctrine.
More is necessary if such awards indeed aspire to yield a jurisprudence
that is uniform, transparent, and having predictive value. The
shortcomings of this decisional law can be traced to an approach that
“places the cart before the horse” by fashioning different tests that lead to
inconsistent results. The preferred methodology is one that focuses on
developing the very principles being applied in ways that address the
competing interests identified. The emphasis on methodology rather than
principle development inevitably will give rise to issues of process
legitimacy and foster an unacceptable level of uncertainty.
The dissonance arising from emphasis on developing a workable
methodology or standard becomes evident and perhaps reaches a pinnacle
with the “proportionality test” enunciated in the Tecmed award.271 Often
analyzed within the framework of the NAFTA even though the claim is
brought by an investor from a non-NAFTA Party pursuant to the Spain
and Mexico BIT,272 the facts underlying Tecmed somewhat resemble
Metalclad273 but without the municipal, State, and federal dichotomy of
environmental purposes, whether domestic or international, the State’s
obligation to pay compensation remains.
Compañía del Desarrollo de Santa Elena, S.A. v. Republic of Costa Rica, ICSID Case
No. ARB/96/1, Award ¶ 72 (Feb. 17, 2000), 5 ICSID REV. 169, 192 (2000).
270
See Tecmed, supra note 168.
271
Id. at ¶ 122.
272
Id. at ¶ 4. The Tecmed case is often discussed in conjunction with cases brought
pursuant to NAFTA. See, e.g., Timothy Meyer, Codifying Custom, 160 U. PA. L. REV.
995, 1041 n.177 (2012); Allan Ingelson & Lincoln Mitchell, NAFTA, the Mining Law of
1872, and Environmental Protection, 51 NAT. RESOURCES J. 261, 283 (2011); Alberto R.
Salazar V., Ph.D., NAFTA Chapter 11, Regulatory Expropriation, and Domestic
Counter-Advertising Law, 27 ARIZ. J. INT’L & COMP. L. 31, 48 (2010); Vicki Been,
NAFTA’s Investment Protections and the Division of Authority for Land Use and
Environmental Controls, 20 PACE ENVTL. L. REV. 19, 41 n.135 (2002).
273
See supra Chapter 1.H.
EAST\64724221. 399
positions concerning the need for a municipal permit as a predicate to
constructing and operating a hazardous waste landfill facility.274
The Tecmed tribunal’s analysis of the role of public purpose is less
than lucid. Even though for purposes of determining whether there has
been a compensable expropriation the tribunal acknowledges “[t]he
principle that the State’s exercise of its sovereign powers within the
framework of its police power may cause economic damage to those
subject to its powers as administrator without entitling them to any
compensation whatsoever is undisputable,”275 it struggles with the role
that public purpose defined as “a legitimate aim ‘in the public interest’”
plays in determining whether there is an expropriation or a compensable
expropriation.276 At the outset, the tribunal appears to articulate an “effects
test” approach to determining whether there is an expropriation that is
274
Claimant in Tecmed was the awardee in connection with a public auction held by
Promotora Inmobiliaria del Ayuntamiento de Hermosillo (“Promotora”) a decentralized
municipal agency of the Municipality of Hermosillo, located in the State of Sonora,
Mexico. The auction concerned the sale of real, and improved property in addition to
facilities and assets concerning a controlled landfill of hazardous industrial waste. The
facility was known as “Cytrar,” which eventually became the holder of Tecmed’s rights
and obligations under the tender. Tecmed, supra note 168, at ¶ 35.
While the land on which the landfill was built had been purchased by the Government of
the State of Sonora, in the locality of Las Víboras, falling within the jurisdiction of the
Municipality of Hermosillo, in the State of Sonora, the landfill operated pursuant to a
renewable license issued by the Ministry of Urban Development and Ecology
(“SEDUE”) of the federal government of Mexico. Initially, Parque Industrial de
Hermosillo, a public agency of the State of Sonora, operated the facility. Upon a transfer
of ownership of the landfill to a decentralized agency of the Municipality of Hermosillo,
Confinamiento Controlado Parque Industrial de Hermosillo O.P.D., this agency was
provided with authorization to operate for an indefinite period of time. Authorization was
granted by the Hazardous Materials Waste and Activities Division of the National
Ecology Institute of Mexico (“INE”) an agency of the federal government of the United
Mexican States within the Ministry of the Environment, Natural Resources and Fisheries
(“SEMARNAP”), which cancelled the initial authorization that SEDUE had issued. Id. at
¶¶ 36-37.
Eventually, INE rejected Tecmed’s application for renewal of the authorization to operate
the landfill and requested Cytrar to submit a program for the closure of the landfill. Id. at
¶ 39. Tecmed commenced the arbitration alleging, among other things, that the failure to
grant a new permit renewing authorization to operate the landfill constitutes an
expropriation of its investments without compensation or justification, in addition to a
violation of the operative agreement and of Mexican law. In this connection, Tecmed
further averred that “such refusal would frustrate its justified expectations of the
continuity and duration of the investment made and would impair recovery of the
invested amount and the expected rate of return.” Id. at ¶ 41.
275
Id. at ¶ 119.
276
Id. at ¶ 122 (citing Case of James & Others v. United Kingdom, 98 Eur. Ct. H.R. (ser.
A) ¶ 50 (Feb. 21, 1986)).
EAST\64724221. 3100
completely severed from any meaningful consideration of the connection
that such effects arising from the government measure at issue may have
with a State’s police powers or legitimate public purpose.277 It is observed
that “[t]he government’s intention is less important than the effects of the
measures on the owner of the assets or on the benefits arising from such
assets affected by the measures; and the form of the deprivation measure is
less important than its actual effects.”278 This preliminary “effects test”
also is segregated from the legal status of the domestic law purporting to
provide a normative basis for the measure at issue.279
277
The tribunal underscores the “effects test” as a talisman that distinguishes between a
State’s legitimate exercise of its police powers (which we here construe as public
purpose) and a de facto expropriation that wrests all value or ownership from the investor
with respect to the investment. In so doing, however, the tribunal failed to explain, or
even attempt to elucidate whether a legitimate exercise of a State’s police power
constitutes a de facto expropriation that is or may not be compensable. The extent to
which public purpose affects compensability is simply never Stated. The tribunal’s
reasoning merits citation:
To establish whether the Resolution is a measure equivalent to an
expropriation under the terms of Section 5(1) of the Agreement, it must
be first determined if the Claimant, due to the Resolution, was radically
deprived of such economical use and enjoyment of its investments, as if
the rights related thereto – such as the income or benefit related to the
Landfill or its exploitation – had ceased to exist. In other words, if due
to the actions of the Respondent, the assets involved have lost their
value or economic use for the holder and the extent of the loss. This
determination is important because it is one of the main elements to
distinguish, from the point of view of an international tribunal, between
a regulatory measure, which is an ordinary expression of the exercise of
the State’s police power that entails a decrease in assets or rights, and a
de facto expropriation that deprives those assets and rights of any real
substance. Upon determining the degree to which the investor is
deprived of its goods or rights, whether such deprivation should be
compensated and whether it amounts or not to a de facto expropriation
is also determined. Thus, the effects of the actions or behavior under
analysis are not irrelevant to determine whether the action or behavior
is an expropriation.
Id. at ¶ 115 (emphasis supplied).
278
Id. at ¶ 116 (citing Tippetts, Abbett, McCarthy, Stratton v. TAMS-AFFA Consulting
Engineers of Iran, 6 Iran-U.S. Cl. Trib. Rep. 219, 225 (1984); Phelps Dodge Corp. et al.
v. Iran, 10 Iran-U.S. Cl. Trib. Rep. 121, 130 (1986)).
279
The Tribunal noted, “[t]hat the actions of the Respondent are legitimate or lawful or in
compliance with the law from the standpoint of the Respondent’s domestic laws does not
mean that they conform to the Agreement or to international law,” id. at ¶ 120, and
provided:
An Act of State must be characterized as internationally wrong if it
constitutes a breach of an international obligation, even if the Act does
EAST\64724221. 3101
The objective analytical elegance of an “effects test” is wholly
undermined by its inability to account for the interests of the Host State.
The understanding of interests among States within an independent
framework cannot be abandoned. Metalclad best exemplifies this debility.
Tecmed’s incorporation of this analytical rubric from cases decided by the
European Court of Human Rights only exacerbates the need for a
doctrinally developed public purpose principle without which the
proportionality test flatly fails.280 The tribunal’s construction of the
European Court of Human Rights’ proportionality test results in a hybrid
of international investment law and international trade law when
articulated within the context of the proceeding before it:
[T]he Arbitral Tribunal should consider whether
community pressure and its consequences, which
presumably gave rise to the government action qualified as
expropriatory by the Claimant, were so great as to lead to a
serious emergency situation, social crisis or public interest,
in addition to the economic impact of such a government
not contravene the State’s internal law – even if under that law, the
State was actually bound to act that way.
Id. (citing JAMES CRAWFORD, THE INTERNATIONAL LAW COMMISSION’S ARTICLES
STATE RESPONSIBILITY 1, 84 (Cambridge University Press 2002)).
ON
280
The Tecmed award transitions from an “effects test” to a proportionality test by
drawing analytical support from the European Court of Human Rights’ jurisprudence. Id.
at ¶ 122 (citing Case of Mellacher & Others v. Austria, 169 Eur. Ct. H.R. (ser. A) ¶ 24
(Dec. 19, 1989); Case of Pressos Compañia Naviera & Others v. Belgium, 332 Eur. Ct.
H.R. (ser. A) ¶ 19 (Nov. 20, 1995)). Specifically, the Tribunal provided:
Not only must a measure depriving a person of his property pursue, on
the facts as well as in principle, a legitimate aim ‘in the public interest,’
but there must also be a reasonable relationship of proportionality
between the means employed and the aim sought to be realised… […].
The requisite balance will not be found if the person concerned has had
to bear ‘an individual and excessive burden’ […] The Court considers
that a measure must be both appropriate for achieving its aim and not
disproportionate thereto.
....Non-nationals are more vulnerable to domestic legislation: Unlike
nationals, they will generally have played no part in the election or
designation of its authors nor have been consulted on its adoption.
Secondly, although a taking of property must always be effected in the
public interest, different considerations may apply to nationals and
non-nationals and there may well be legitimate reason for requiring
nationals to bear a greater burden in the public interest than nonnationals.
Id. at ¶ 122 (citing Case of James & Others v. United Kingdom, 98 Eur. Ct. H.R. (ser. A)
¶¶ 50, 63 (Feb. 21, 1986)) (emphasis supplied) (internal footnotes omitted).
EAST\64724221. 3102
action, which in this case deprived the foreign investor of
its investment with no compensation whatsoever. These
factors must be weighed when trying to assess the
proportionality of the action adopted with respect to the
purpose pursued by such measure.281
While the proportionality test introduced a public purpose balancing
component, in applying the very test that it had reformulated for purposes
of application in a treaty-based arbitration, the tribunal denaturalized the
public purpose element by specifically concluding that only where the
regulatory measure at issue is in furtherance of the protection from
imminent peril to the ecological balance or public health would such a
measure constitute an exception where an investment’s ownership is
dislodged or its value fundamentally diminished.282 Therefore, according
to the Tecmed holding and analysis the element of the proportionality test
relating to public purpose only concerns a very narrow segment of the
State’s regulatory space.
281
Id. at ¶ 133 (emphasis supplied). As to the meaning of “public interest” as referred to
by the Tribunal, had identified “the protection of the environment, ecological balance and
public health, as additional factors comprising its understanding of “public interest.” Id.
at ¶ 129.
282
As to this point, the Tribunal’s language could not be clearer:
As expressed by the Respondent, the Landfill’s proximity to
Hermosillo’s urban center, and not concrete evidence that the Landfill’s
operation is harmful for the environment or public health, is the issue
that concentrates opposition of the groups that are against the Landfill.
Id. at ¶ 140.
The Award further States:
In this case, there are no similar or comparable circumstances of
emergency [similar or comparable to the situation in Elettronica Sicula
Sp.A. No serious social situation, nor any urgency related to such
situations, in addition to the fact that the Mexican Courts have not
identified any crisis. The actions undertaken by the authorities to face
these socio-political difficulties, where these difficulties do not have
serious emergency or public hardship connotations, or wide-ranging
and serious consequences, may not be considered from the standpoint
of the Agreement or international law to be sufficient justification to
deprive the foreign investor of its investment with no compensation,
particularly if it has not been proved that Cytrar or Tecmed’s behavior
has been the determinant of the political pressure or the demonstrations
that led to such deprivation, which underlie the Resolution and
conclusively conditioned it.
Id. at ¶ 147 (citing Case Concerning Elettronica Sicula S.p.A. (ELSI) (U.S. v. Italy), 1989
I.C.J. 15 (July 20)).
EAST\64724221. 3103
Tecmed’s extrapolation of proportionality from the European Court
of Human Rights’ jurisprudence has the residual effect of serving
primarily as an “effects test” based upon three key analytical premises.
First, the tribunal engaged exclusively in an “effects test” suggestive of an
expropriation.283 Second, the “effects test” was supplemented with a
“private interest” element rendering possible a proportionality of the ratios
between the burden of the measure on the investment and its relationship
with the nature of the measure at issue, and the objective that this measure
seeks to redress. Third, the tribunal defines the measure to be redressed as
posing an immediate threat to the ecological balance, leading to a social
crisis, or affecting health. This third level of the tribunal’s construction
substantially limits the scenarios in which a measure could meet the
exception and as a result carves out of the proportionality test the public
purpose component—leaving only an “effects” standard favoring
claimants. In so doing, it undermines the equipoise sought between
capital-exporting (likely claimants) and capital-importing countries (likely
Host States). The extent to which the Tecmed tribunal intended to identify
a category of public purpose commanding greater deference in the
proportionality analysis and enjoying exception status with respect to the
measure at issue is left wholly unclear. In undertaking this exercise the
tribunal remained silent and did not articulate any intent to create
customary law by identifying a specific public purpose matrix.284
The identification of public purpose categories serving as
exceptions justifying the legitimate and non-discriminatory exercise of a
State’s regulatory authority to the detriment of a foreign investment, even
beyond the State necessity exception,285 finds support in the NAFTA and
its jurisprudence.
283
Id. at ¶ 115.
284
The Tribunal’s reasoning on this issue is somewhat truncated. While it is true that the
evidence before it, as recited in the Award, underscored the location of the site as not an
immediate threat to health, ecological balance, or a social crisis, it would appear to follow
that political pressure incident to the Landfill’s location as being too close to an urban
center, itself suggests a deeper State of apprehension arising from the increased risk of
danger inversely proportional to the Landfill’s proximity to more densely populated
areas.
The duration and nature of the community reactions to the operation and transportation of
hazardous waste from the facility gave rise to the filing of a complaint before Mexico’s
National Commission of Human Rights. Id. at ¶ 135.
285
The customary international law doctrine of necessity is reflected succinctly in Article
25 of the International Law Commission’s Draft Articles on State Responsibility for
Wrongful Acts:
1.
Necessity may not be invoked by a State as a ground for
precluding the wrongfulness of an act not in conformity with an
international obligation of that State unless the act:
EAST\64724221. 3104
3.
The Tecmed Contribution
Chapter Fourteen of the NAFTA entitled Financial Services is a
helpful example of a framework that reveals the developmental potential
of the public purpose doctrine. It exemplifies ways in which public
purpose may be enriched by creating special categories defined with
particularity that are to be accorded extraordinary status in tempering the
conflicting interests pertaining to the protection of foreign investments and
the autonomy of host-State regulatory space.286 The development of a
(a). is the only way for the State to safeguard an essential
interest against a grave and imminent peril; and
(b). does not seriously impair an essential interest of the State
or States towards which the obligation exists, or of the
international community as a whole.
2.
In any case, necessity may not be invoked by a State as a ground
for precluding wrongfulness if:
(a). the international obligation in question excludes the
possibility of invoking necessity; or
(b). the State has contributed to the situation of necessity.
International Law Commission, Articles on Responsibility of States for Internationally
Wrongful Acts, With Commentaries, UN Doc. A/56/10 (2001), p. 80, available at
http://untreaty.un.org/ilc/texts/instruments/english/commentaries/9_6_2001.pdf
(last
accessed Apr. 1, 2013) [Hereinafter ILC Articles]. The commentary further provides that
there is “substantial authority in support of the existence of necessity as a circumstance
precluding wrongfulness. It has been invoked by States and has been dealt with by a
number of international tribunals. In these cases the plea of necessity has been accepted
in principle, or at least not rejected.” Id. at 80-81.
286
Article 1401: Scope and Coverage, identifies the parameters of this public purpose
category:
1. This Chapter applies to measures adopted or maintained by a Party
relating to:
(a) financial institutions of another Party;
(b) investors of another Party, and investments of such
investors, in financial institutions in the Party’s territory;
and
(c) cross-border trade in financial services.
2. Articles 1109 through 1111, 1113, 1114 and 1211 are hereby
incorporated into and made a part of this Chapter. Articles 1115
through 1138 are hereby incorporated into and made a part of this
Chapter solely for breaches by a Party of Articles 1109 through 1111,
1113 and 1114, as incorporated into this Chapter.
3. Nothing in this Chapter shall be construed to prevent a Party,
including its public entities, from exclusively conducting or providing
in its territory:
EAST\64724221. 3105
functional public purpose doctrine embracing an objective substantive
content shall require paradigms of public purpose categories that refine
and limit application of public purpose exceptions as a general principle
that currently are broadly related to the welfare of a State. Fireman’s Fund
Insurance Company (Fireman’s Fund)287 was the first case, and as of the
date of this writing remains as the only case, brought under the Financial
Services Chapter of the NAFTA, and thus provided the tribunal in that
matter with a unique opportunity to interpret the “reasonable measures for
prudential reasons” standard contained in the Article 1410(1)
exceptions.288 The case serves as a vast analytical source for any endeavor
aspiring to redefine the public purpose doctrine for three principal reasons:
First, the Article 1410(1) exceptions represent a special class of
public purpose category that exceed in importance other regulatory
measures that a State may undertake as part of its normal exercise of
sovereignty. Any tribunal addressing application of such a public purpose
category must reconcile a normative basis of the category with the burdens
that the regulatory measure at issue imposes on a foreign investment. In
doing so, the tribunal credibly has to address reasons why a generic
“public purpose” formula, pursuant to which public purpose is merely
defined as an act undertaken by a State with the intent to serve the general
(a) activities or services forming part of a public retirement
plan or statutory system of social security; or
(b) activities or services for the account or with the guarantee
or using the financial resources of the Party, including its
public entities.
NAFTA, supra note 18, art. 1401 ¶¶ 1-3.
287
See Fireman’s Fund, supra note 167.
288
NAFTA Article 1410(1) (Exceptions) States:
1. Nothing in this Part [5., i.e., “Investment, Services and Related
Matters”] shall be construed to prevent a Party from adopting or
maintaining reasonable measures for prudential reasons, such as:
(a) the protection of investors, depositors, financial market
participants, policy-holders, policy-claimants or persons to
whom a fiduciary duty is owed by a financial institution or
cross-border financial service provider;
(b) the maintenance of the safety, soundness, integrity or
financial responsibility of financial institutions or cross-border
financial service providers; and
(c) insuring the integrity and stability of a Party’s financial
system.
NAFTA, supra note 18, art. 1410 ¶ 1(a)-(c) (emphasis
supplied).
EAST\64724221. 3106
welfare, is simply insufficient. This challenge is considerable. Indeed to
date, no decisional award has met it in large measure because of the
juridical cultural consensus that public purpose is a self-evident principle,
which it is not.
In a very basic sense, application of a special public purpose
category in the context of dispute resolution leads to “an abandonment” of
the orthodox public purpose doctrine because of its emphasis on the
nature and character of the special public purpose class rather than on the
particular factual configuration of the case. A public purpose doctrine that
aspires to meet the needs of an economic globalization framework
premised on the interdependence of States as an organizing principle must
comprise special categories that are known a priori, in part, so that
investor expectations can be met.
In addition, the focus on the application of a special public purpose
category mitigates negative consequences from an “effects only test.”
Most notably, the chilling effect that an effects test may have on beneficial
host-State regulatory pronouncements is somewhat mitigated. Similarly,
States negotiating bilateral or multilateral investment treaties shall enjoy
greater transparency in understanding the extent to which prospective
investments may be adversely compromised by regulatory measures. This
bilateral transparency, in addition to harmonizing party expectations, may
serve for more robust treaty negotiation and drafting as to issues that touch
and concern special public purpose categories.
Second, the “reasonable measures for prudential reasons” standard
introduces much needed “objective criteria” into the public purpose
doctrinal analysis. The orthodox public purpose doctrine is premised on a
subjective intent standard that presents practically insurmountable
evidentiary challenges. For this reason the doctrine is often rendered
inconsequential from a pragmatic standpoint or as a thinly veiled pretext
presumably justifying an indirect expropriation that cannot be
meaningfully assailed.289 Even though the terms “reasonable” and
289
The orthodox public purpose doctrine’s subjective constitution has contributed to
inconsistencies in the understanding and application of the doctrine as evinced by the
diametrically opposite results in Metalclad and Methanex. For example, in Feldman v.
Mexico, in discussing what it perceived to be the challenge of applying to specific
cases the general language of the NAFTA’s Article 1110(1)(a)-(d) the tribunal Stated:
The view that the conditions (other than the requirement for
compensation) are not of major importance in determining
expropriation is confirmed by the ReStatement of the Law of Foreign
Relations of the United States, a source relied on by many American
and Canadian lawyers that has been discussed in the memorials of
both the Claimant and the Respondent in this proceeding. For
example, according to the ReStatement, the public purpose
requirement ‘has not figured prominently in international claims
EAST\64724221. 3107
“prudential” within the standard are broad and susceptible to flexible
constructions, they still bespeak universality and vest the public purpose
doctrine with workable parameters.
Third, the Article 1410(1) exceptions raise the predicate question
concerning the manner in which, if at all, the legacy orthodox public
purpose element of expropriation in public international law is to be
applied in cases where special public purpose categories are likely to be
triggered. Even though the meaning of expropriation is less than
monolithic as a matter of customary and conventional international law
within the very NAFTA anatomy itself,290 the public purpose doctrine or
practice, perhaps because the concept of public purpose is broad and
not subject to effective reexamination by other States.
Feldman v. United Mexican States, ICSID Case No. ARB (AF)/99/1, Award, ¶ 99 (Dec.
16, 2002), 7 ICSID Rep. 341 (2005) [Hereinafter Feldman] (citing RESTATEMENT
(THIRD) OF THE FOREIGN RELATIONS LAW OF THE UNITED STATES § 712, cmt. g. (1987))
(emphasis supplied).
290
NAFTA does not give a definition for the word ‘expropriation.’ In some ten cases
in which Article 1110(1) of the NAFTA was considered to date, the definitions appear
to vary. Considering those cases and customary international law in general, the
present Tribunal retains the following elements:
(a)
Expropriation requires a taking (which may include
destruction) by a government-type authority of an investment by an
investor covered by the NAFTA.
(b)
The covered investment may include intangible as well as
tangible property.
(c)
The taking must be a substantially complete deprivation of the
economic use and
enjoyment of the rights to property, or of
identifiable distinct parts thereof (i.e.,
it
approaches
total
impairment).
(d)
The taking must be permanent and not ephemeral or
temporary.
(e)
The taking usually involves a transfer of ownership to another
person (frequently
the government authority concerned), but
that need not necessarily be so in certain cases (e.g. total destruction
of an investment due to measures by a
government
authority
without transfer of rights).
(f)
The effects of the Host State’s measures are dispositive, not
the underlying intent, for determining whether there is expropriation.
(g)
The taking must be de jure or de facto.
(h)
The taking may be ‘direct’ or ‘indirect.’
(i)
The taking may have the form of a single measure or a series
of related or
unrelated measures over a period of time (the socalled ‘creeping expropriation’).
(j)
To distinguish between a compensable expropriation and a
non-compensable regulation by a host-State, The following
factors (usually in combination) may be taken into account:
whether the measure is within the recognized police powers of
the Host State; the (public) purpose effect of the measure;
whether the measure is discriminatory; the proportionality
EAST\64724221. 3108
any of its permutations, i.e., police powers, public interest, public welfare,
etc., underlies the various definitions of expropriation. It is a constant
common denominator in the doctrine of expropriation. Consequently, is
public purpose as a doctrine to be taken seriously in determining whether a
direct or indirect expropriation or nationalization has taken place? And if
so, whether or not such taking is compensable where a public purpose is
present, should public purpose within the meaning of Article 1110(1) of
the NAFTA, and as articulated in the jurisprudence of expropriation more
generally, be accorded a distinctive deference from the other elements that
suggest treatment in pari materia?
Fireman’s Fund is helpful because it places in sharp relief two
important “special public purpose category” issues that are of practical and
theoretical significance. First, is the discriminatory “lack of effort by Host
State to rescue an investment that has become virtually worthless,” an
expropriation or divestment of that investment?291 Second, where a
measure adopted by a Host State is neither “reasonable” nor “prudential”
within the meaning of Article 1410(1) of the NAFTA, does it then
automatically give rise to liability?
The Article 1410(1) exceptions foreclose actions that would
constitute a violation under the NAFTA pursuant to Chapter Eleven. So
long as the measure in question qualifies as a “reasonable measure taken
for prudential reasons” from a methodological standpoint, a special public
purpose category provides for discriminatory application without violating
the national treatment standard. The tribunal in Fireman’s Fund correctly
rejected claimant’s contention that “if a measure adopted or maintained by
[the Host State] is found not to be reasonable or taken for prudential
reasons, it would give rise to liability, or at least to a presumption of
liability, under Article 1110.”292
Regrettably, the tribunal disturbingly clouded its reasoning by
focusing on the methodology incident to an Article 1110 analysis instead
of elaborating on the status of a special public purpose category contained
in Article 1410.293 A measure, for example, premised on a State’s
between the means employed and the aim sought to be
realized; and the bona fide nature of the measure.
Fireman’s Fund, supra note 167, at ¶¶ 176(a)-(j) (internal footnotes omitted & emphasis
supplied).
291
Id. at ¶ 207
292
Id. at ¶ 160.
293
On this point, the tribunal reasoned:
EAST\64724221. 3109
protection of the integrity and stability of its financial system—and
therefore falling within the ambit of an Article 1410 exception—should
not be evaluated based upon an “effects test,” which is what “an initial” or
“tentative” Article 1110 analysis would require. The tribunal did in fact
grasp this principle in analyzing the proscribed discrimination claim under
Chapter Fourteen that claimant sought to assert. It did observe that “the
[discriminatory] exception applies to all provisions of Part Five
‘Investments, Services and Related Matters’) of the NAFTA applicable to
Financial Services including the National Treatment Article (Article
1405),” and, therefore, “concludes that Article 1410(1) permits reasonable
measures of a prudential character even if their effect (as contrasted with
their motive or intent) is discriminatory. The Tribunal rejects the
contention that a measure discriminatory in effect is eo ipso
unreasonable.”294 The citation to the writings of the principal negotiator of
Chapter Fourteen on behalf of the United States is instructive in
illustrating application of a special public purpose category beyond just
national treatment:
Article 1410(1)(a)… carves out of the national treatment
and other obligations of the Financial Services chapter, a
right to take reasonable measures even though
discriminatory in application, to protect the safety and
soundness of the financial system. This regulatory
prerogative to protect the integrity of the financial system is
accepted internationally.295
The proposition that the “condition preceding for invocation of the
Prudential Measures Exception [is] a finding of expropriation,” has the
consequence of subordinating application of the exception to an “effects
test” and of treating a special public purpose category no differently than
the “standard exceptions” articulated in Article 1110(1)(a) through (d).296
The Tribunal rejects this contention [that a measure adopted or
maintained by a Host State found not to be reasonable or taken
prudential reasons would give rise to liability]. As the Tribunal
understands Article 1410 within the anatomy of the NAFTA, a
judgment as to whether the exception applies is called for only after an
initial, at least tentative, conclusion that Article 1110 or another
applicable provision of the NAFTA may have been violated.
Id.
294
Id. at ¶ 162.
295
Id. at ¶ 163 (citing to Olin L. Wethington, FINANCIAL MARKET LIBERALIZATION §
5.07 (Sheppard’s McGraw Hill 1994)).
296
Id. at ¶165. It is not being suggested that an orthodox expropriation analysis is
altogether obviated where a special public purpose category is alleged. To the contrary,
EAST\64724221. 3110
The condition preceding the analysis here proposed both
conceptually and analytically best comports with the tribunal’s treatment
of the two above-mentioned questions. Namely, is the discriminatory
“lack of effort by a Host State to rescue and investment that has become
virtually worthless” an expropriation or divestment of that investment?297
Second, where a measure adopted by a Host State is neither “reasonable”
nor “prudential” within the meaning of Article 1410(1) of the NAFTA,
does it then automatically give rise to liability?298 Both of these queries
were decided in the negative. Critical to their determination is a
preliminary assessment of the measure in question as rising to the level of
a special public purpose category. A finding in the affirmative as to this
predicate issue streamlines and fast-frames an expropriation or
nationalization analysis.299
the proposition asserted maintains that only by first determining as a condition precedent
that in fact a special public purpose category such as the Article 1410 Exceptions applies
can the elements of an expropriation under the NAFTA and international customary law
find its most efficient and analytically consistent workings. This methodology is
particularly suited and appropriate for the NAFTA because, as the tribunal in Fireman’s
Fund aptly noted, the NAFTA, much like the ICSID convention with “investment,”
deliberately does not define “expropriation.” Therefore, a predicate analysis of the bona
fide nature of the special public purpose category at issue would be required. The
soundness of this approach is underscored even more because the single common
denominator of the mosaic of “tests” each purporting to identify the dispositive
expropriation cornerstone, is the public purpose element.
297
Id. at ¶ 207.
298
Id. at ¶ 162. The tribunal also reframed the issue as to the NAFTA’s Article 1110:
“The question before the Tribunal is whether it could also give rise to a claim under
Article 1110 (Expropriation and Compensation) of the NAFTA since the Tribunal lacks
competence over claims under Article 1102, 1105 and 1405.” Id. at ¶ 203. It responded in
the negative: “The Tribunal concludes that it does not rise to a claim under Article 1110.”
Id.
299
In Fireman’s Fund the Tribunal ignored the status of the measure at issue as a special
public purpose category clearly within Article 1410, when attempting to reconcile
discriminatory treatment with nationalization or expropriation status. Rather than
focusing on the conceptual link between the discriminatory treatment at issue as one
arising from a measure falling with the province of Article 1410, the Tribunal undertook
an analysis that carved out the conceptual effects of a special public purpose category
altogether. Instead, it focused on the relationship between any form of discrimination and
the general customary international law standard for expropriation by emphasizing three
propositions. First, the finding of a discriminatory measure, without more, does not
necessarily lead to a conclusion that an expropriation is present. Id. at ¶ 205. Second, a
finding of discriminatory treatment is but one of several factors used to distinguish
between a compensable expropriation and a non-compensable expropriation by a Host
State. Id. at ¶ 206. Third and finally, a “misrepresentation” and “investor expectation”
analysis ensued pursuant to which the Tribunal determined that “[n]or were there
reasonable investor-backed expectations created by Mexico, even though Mexico should
have pursued the conclusion of an agreement.” Id. at ¶ 207. Only because the Tribunal
decided that the elements of an expropriation or nationalization were not met did it
EAST\64724221. 3111
Decided six years after Metalclad and one year after Methanex, it
becomes necessary to ask whether Fireman’s Fund helped to narrow the
conceptual and doctrinal chasm conceptually and doctrinally separating its
two predecessors. Does Fireman’s Fund, as the first case under the
NAFTA’s Chapter Fourteen contribute to our understanding of the public
purpose doctrine generally and within the NAFTA, and if so how? Is the
meaning of “public purpose” any clearer after Fireman’s Fund? Is the
Tecmed proportionality test and its application rendered any more
practical by the Fireman’s Fund award? Indeed, does the status of the
measure at issue in Fireman’s Fund as falling within Article 1410
contribute to the finding that there was no direct or indirect expropriation,
or any actions tantamount to an expropriation of the property in question?
The Fireman’s Fund award does not bring us any closer to a more
comprehensive understanding of the application of an Article 1410
exception. The tribunal’s analysis preempts consideration of the special
public purpose category that the NAFTA’s Chapter Fourteen offers. In this
very narrow sense, the award does not call attention to any specific
methodology or doctrinal construction applicable to a NAFTA Chapter
Fourteen case that would not attach to a “standard” Chapter Eleven
contention. The award manages to obviate a special public purpose
category Chapter Fourteen analysis because it only focused on the extent
to which claimant had established that an expropriation took place within
the meaning of the NAFTA’s Article 1110.300 The Fireman’s Fund award
nearly segregates five principal grounds alleged for expropriation and
rejects each pursuant to an Article 1110 analysis that nowhere references
the effects or application of Article 1410 exceptions.301 The examination
conclude that liability did not attach despite a factual finding of discrimination. “In the
Tribunal’s view, this is a clear case of discriminatory treatment of a foreign investor.” Id.
at ¶ 203.
300
The award, in pertinent part, States:
The Tribunal concludes with respect to prudential measures that Article
1410 of the NAFTA provides a defense to the State-Party if a tribunal
has found a challenged measure to constitute an expropriation in
violation of Article 1110 of the NAFTA. The validity of that defense, is
necessary to decide a claim under Article 1110, is to be judged either
by the Financial Services Committee, or if no request has been
submitted for invoking the Committee procedure, by the arbitral
tribunal. In the present case, the issue whether the challenged measures
were reasonable or arbitrary is moot, because the Tribunal has not
found these measures to constitute expropriation under the NAFTA....
Id. at ¶ 68.
301
The Tribunal found as follows with respect to the five specific averments identified
and construed as not
constituting an actionable taking of whatsoever ilk:
EAST\64724221. 3112
(i) “The first act alleged by [Fireman’s Fund] cannot be considered by any
standard a taking that deprived [Fireman’s Fund] of the economic use and
enjoyment of the Dollar Debentures.” Id. at ¶ 186 (emphasis supplied).
“Assuming that the Government of Mexico ‘compelled’ [Fireman’s
Fund] to participate in the Recapitalization Plan in early 1988, it was
for the purpose of rescuing [Fireman’s Fund’s] investment, rather than
taking it away from [them].” Id. at ¶ 189. (emphasis in original).
(ii) “The contentions regarding the second act as alleged by [Fireman’s Fund]
must also fail. It is based on a Recapitalization Program that never materialized.
[Fireman’s Fund’s] Dollar Debentures were never redeemed and [Fireman’s
Fund] never made the additional US$50 million capital contribution. Nor was
the participation by a foreign bank accomplished. Consequently, the Mexican
authorities cannot have proceeded ‘to thwart the Program’ or ‘destroyed’ that
Program.” Id. at ¶ 192. (emphasis in original).
(iii) “The third act is more troubling but does not constitute a taking under
Article 1110 of the NAFTA either.” Id. at ¶ 200.
“In the Tribunal’s view, this is clear case of discriminatory treatment of
foreign investor.... Such treatment might have given rise to claim by an
investor under Articles 1102 (National Treatment), Article 1105
(Minimum Standard of Treatment), or Article 1405 (National
Treatment) of the NAFTA, or under two or all of them. The question
before the Tribunal is whether it could also give rise to a claim under
Article 1110 (Expropriation and Compensation) of the NAFTA since
the Tribunal lacks competence over claims under Articles 1102, 1105
and 1405. The Tribunal concludes that it does not rise to a claim under
Article 1110.” Id. at ¶ 203 (emphasis in original).
.
(iv) “The fourth act is the return of the loan portfolio by FOBAPROA in
November 1998....” Id. at ¶ 210 (emphasis in original).
“In any event, the effect of the return of the portfolio in November
1998 cannot be said to have taken away the value of [Fireman’s Fund]
investment. At that point in time, the financial position of BanCrecer
was so bad, that it was de facto already in a State of insolvency.
Moreover, the effect of the return of the portfolio appears to be
included in BanCrecer’s financial Statements for 1999 only....” Id. at ¶
214. In addition, the Tribunal held that Fireman’s Fund did not
reasonably rely on FOBAPROA’s commitments and, therefore, had no
legitimate expectations that could have sustained a claim against
Mexico. Id. at ¶¶ 214-215.
(v) “Finally, the fifth act is the taking of control by IPAB of BanCrecer in
November 1999.... It appears that the shareholders of BanCrecer, i.e., GFB
voted in favour of a taking of control by IPAB over BanCrecer and a
dissolution of liquidation of GFB. They did so in light of the hopeless
financial position of BanCrecer and as a consequence of GFB. The facts do
not demonstrate that the action by IPAB constituted a taking by IPAB in the
sense of an expropriation on behalf of the State.” Id. at ¶ 216 (emphasis in
original).
EAST\64724221. 3113
of all five premises upon which Fireman’s Fund’s claims rested were
merely subjected to an “effects test” that hardly considered the nature and
character of the measures at issue. Consequently, from both an analytical
and doctrinal perspective, Fireman’s Fund does not shed much light on
the extent to which treatment of a NAFTA Chapter Fourteen case at all
differs from a Chapter Eleven proceeding where Article 1410 defenses do
not apply.
The case also fails to enhance the anatomy or application of the
proportionality test first raised in Tecmed.302 This omission is quizzical as
an Article 1410, or any other type of special public purpose category case,
would be particularly amenable to a proportionality analysis. This
omission is particularly odd because the tribunal references the
proportionality test as constituting the penultimate element of its synopsis
of the NAFTA decisional-law on expropriation predating the Fireman’s
Fund award.303 The proportionality test’s aspiration of identifying,
balancing, and analyzing two pivotal aspects of the regulatory measure at
issue (means and ends) would be necessary to a Chapter Fourteen or
special public purpose category case because of the need to provide for
process legitimacy, among other considerations, in fleshing out a Host
State’s exercise of regulatory sovereignty causing harm to a foreign
investment/investor where compensation for such harm does not ensue as
a matter of law.304 The policies underlying the NAFTA’s Chapter
Fourteen may best be expressed as an analysis purporting to explain “the
aim sought to be realized” by the Host State’s regulatory measure.305
Fireman’s Fund, however, altogether passes on application of
proportionality without explanation.
A broad reading of Fireman’s Fund supports the proposition that
where a foreign investment is, (i) significantly diminished in value,306 (ii)
pursuant to a discriminatory measure imposed by a Host State,307 (iii) as a
result of the regulatory measure at issue causing the investor significant
302
See Tecmed, supra note 168, at ¶ 122.
303
Fireman’s Fund identifies and attributes the proportionality test to Tecmed. Fireman’s
Fund, supra note 167, at ¶ 176(j) (“... the proportionality between the means employed
and the aim sought to be realized.”) (citing Tecmed, supra note 168, at ¶ 122).
304
Fireman’s Fund’s request for an award compensating it for the full value of its
investment was denied and each Party was ordered to bear its own costs and to share in
the Tribunal’s costs in equal shares corresponding to the Parties’ cost advances. See id. at
¶¶ 226(2)-(3).
305
Id.
306
Id. at ¶ 176(c).
307
Id. at ¶ 176(j).
EAST\64724221. 3114
losses,308 (iv) the taking is not compensable if the public purpose
underlying it does not need a conventional expropriation analysis.309 This
reasonable and eminently plausible construction of the holding in
Fireman’s Fund is particularly troubling because of the manner in which
the public purpose doctrine, from a purely conceptual standpoint, fashions
the entirety of the legal reasoning. The tribunal’s award invests virtually
no ink on the status of the doctrine either within or beyond Chapter
Fourteen.310 Without explicitly acknowledging the relationship between a
special public purpose category within the ambit of Article 1410 and its
effect on the particular investment concerned, the tribunal does little more
than to reduce its holding and reasoning to a mere “effects test”
indistinguishable from Metalclad but lacking an equitable holding
resulting in a compensable expropriation. Fireman’s Fund fails to shed
any additional light on how best to understand the relationship between
the substantive content of a special public purpose category and an
orthodox expropriation analysis.
While Fireman’s Fund does purport to have canvassed the ten
previously decided NAFTA cases concerning expropriation in order to
fashion a comprehensive test,311 it refrains from noting the very different
308
Id. at ¶¶ 206, 218.
309
Id. at ¶¶ 205-208.
310
Nowhere in paragraphs 186-210 or 216 of the award, where the five specific acts
alleged are analyzed and contextualized, does the Tribunal allocate a single sentence to
explain the manner in which without reference to legacy public purpose doctrine is being
used to support its findings. Id. at ¶¶ 186-202, 210, 216.
296
Id. at ¶ 176. The ten cases to which the Tribunal presumably was referencing are:
1.
Methanex Corp. v. United States of America, NAFTA Ch. 11/UNCITRAL,
Final Award on Jurisdiction and Merits (Aug. 3, 2005), 16 ICSID Rep. 40
(2012).
2.
International Thunderbird Gaming Corp. v. United Mexican States, NAFTA Ch.
11/UNCITRAL,
Final
Award
(Jan.
26,
2005),
http://www.iisd.org/pdf/2006/itn_award.pdf.
3.
Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB
(AF)/00/3, Award (Apr. 30, 2004), 11 ICSID Rep. 361 (2007).
4.
Técnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case
No. ARB (AF)/00/2, Award (May 29, 2003), 10 ICSID Rep. 134 (2006).
5.
Feldman v. United Mexican States, ICSID Case No. ARB (AF)/99/1, Award, ¶
99 (Dec. 16, 2002), 7 ICSID Rep. 341 (2005)
6.
Mondev International Ltd. v. United States of America, ICSID Case No. ARB
(AF)/99/2, Award (Oct. 11, 2002), 6 ICSID Rep. 192 (2004).
EAST\64724221. 3115
weight and application accorded to the doctrine where relevant in each of
those matters. Moreover, the tribunal amassed its expansive ten-category
expropriation standard without noting any need to apply those principles
within the public policies unique to the NAFTA and its Parties. Such
contextualization necessarily would have entailed analysis of the various
competing interests that the public purpose doctrine is saddled with
reconciling. The award does not live up to its promise to meet the
expectations attendant to its status as the first case to be decided under
Chapter Fourteen of the NAFTA.
The tribunal’s “reasoning” as to the actions or omissions on the
part of the Host State are not doctrinally or analytically presented as part
of a NAFTA Chapter Fourteen case and, therefore, appear to be without
conceptual foundation and lacking in value as precedent or persuasive
authority. These findings on the part of the Host State merely are
advanced as just acts or omissions that do not rise to the level of an
expropriation under the NAFTA’s Article 1110.312 The tribunal’s findings
with respect to the first three acts of expropriation attributable to the Host
State’s regulatory authority as claimant alleged are revealing.
The initial averment that the Host State somehow compelled
Fireman’s Fund to participate in a recapitalization plan313 for purposes of
bolstering a financial institution falls squarely with the purview of Article
1410(1)(a)-(c). Rather than emphasizing the very proximate connection
between the Mexican Government’s actions and Article 1410
7.
S.D. Myers Inc. v. Government of Canada, First Partial Award on Liability
(Nov. 13, 2000), 8 ICSID Rep. 18 (2005)
8.
Metalclad Corp. v. United Mexican States, ICSID Case No. ARB (AF)/97/1,
Award (Aug. 30, 2000), 5 ICSID Rep. 212 (2002)
9.
Pope & Talbot Inc. v. Government of Canada, Interim Award (June 26, 2000), 7
ICSID Rep. 69 (2005) [hereinafter Pope & Talbot].
10. Robert Azinian et al. v. United Mexican States, ICSID Case No. ARB/AF/97/2,
Award (Nov. 1, 1999), 5 ICSID Rep. 272 (2002).
312
Fireman’s Fund, supra note 167, at ¶ 203. (“In the Tribunal’s view, this is a clear case
of discriminatory treatment of a foreign investor....The question before the Tribunal is
whether it could also give rise to a claim under Article 1110 (Expropriation and
Compensation) of the NAFTA since the Tribunal lacks competence over claims under
Articles 1102, 1105 and 1405. The Tribunal concludes that it does not rise to a claim
under Article 1110.”); Id. at ¶217 (“In conclusion, none of the acts and omissions alleged
by [Fireman’s Fund] constitutes individually, or taken together, an expropriation of
[Fireman’s Fund’s] investment under Article 1110 of the NAFTA....”).
313
Id. at ¶ 186.
EAST\64724221. 3116
requirements, the tribunal limits its analysis to a plain “effects test.”314
Similarly, the second contention that claimant advanced in support of its
expropriation claim was deemed to be of no moment in the tribunal’s
analysis because of either “a change in the political climate in Mexico at
the time,”315 or “due to [the] fact that Mexico amended its legislation… to
the effect that any rescue plan of a bank required that the existing capital
be first applied to losses.”316 Here, the tribunal identifies two plausible
causes for the detrimental effects that the Host State’s actions had on the
investment. The tribunal even notes that the Host State’s actions are
inappropriate.317 Yet, instead of establishing the exculpatory nature of the
measure because of its character as within the ambit of Article 1410, it
settles for just substituting its judgment in lieu of any Article 1410
analysis.
The tribunal specifically advances that “such a failure cannot be
elevated to interference by a Host State in the rights of an investor in the
sense that it constitutes a deprivation of the investor’s rights in its
investment within the meaning of Article 1110 of the NAFTA.”318
Drawing a connection between Article 1410 and a Host State’s
obligations to salvage a foreign investment would have vested the award
with greater conceptual rigor that equally would have the effect of limiting
the claim, rather than the adoption of the tribunal’s rather circular
argument; “[a] failure to enter a binding agreement to improve that
condition, and possibly [Fireman’s Fund’s] investment, does not deprive
[Fireman’s Fund’s] investment of its economic use since there was
virtually none at the time of the Government’s failure.”319
The third example drawn from claimant’s expropriation allegations
understandably identified the Mexican Government’s refusal to allow
Fireman’s Fund both directly and indirectly to purchase the Dollar
314
The tribunal reasons that “[a]ssuming that the Government of Mexico ‘compelled’
[Fireman’s Fund] to participate in the Recapitalization Plan in early 1998, it was for the
purposes of rescuing [Fireman’s Fund’s] investment, rather than taking it away from
[Fireman’s Fund].” Id. at ¶ 189.
315
Id. at ¶ 198.
316
Id.
317
It is observed that “[o]n the basis of the record before it, the Tribunal is of the view
that the Mexican Authorities did not behave appropriately in failing to pursue the
conclusion of an agreement.” Id. (emphasis supplied).
318
Id. at ¶ 199.
319
Id.
EAST\64724221. 3117
Debentures at face value as part of a discriminatory taking.320 Even the
tribunal found itself impelled to State that this event “is more troubling”321
and “certainly discriminated against [Fireman’s Fund],”322 “but [still]
does not constitute a taking under Article 1110 of the NAFTA either.”323
Again, the tribunal remains silent as to any relationship between the
Mexican Government’s refusal to allow for a face value purchase of the
instruments and the extent to which the nature of such a refusal comports
with “the maintenance of the safety, solvency, integrity or financial
responsibility of financial institutions or cross-border financial service
providers,” [or] “ensuring the integrity and stability of [Mexico’s]
financial system,” as prescribed by Article 1410(b) and (c).324
Even within the context of Chapter Fourteen, the Fireman’s Fund
award does not vest public purpose with objective normative content. Yet,
it construes concrete actions on behalf of a sovereign as not constituting an
expropriation despite (i) the discriminatory nature of the measures, (ii)
their palpable adverse effects on a foreign investment/investor, and (iii)
perhaps even the presence of bad faith conduct on the part of the sovereign
concerning the application of the measure to the investment. The case
provides for exculpatory conduct on behalf of a sovereign but cloaks it in
terms of not meeting a conventional standard for expropriation within the
NAFTA’s jurisprudence.325 As with the standard for expropriation, the
proportionality test was mentioned but never applied, let alone developed
or modified to meet the workings of a special public purpose category
(such as the category enunciated in Article 1410).326 The disproportionate
weight accorded to the workings of the Host State’s regulatory space and
the lack of analysis as to public purpose from a doctrinal perspective
generally and within the NAFTA severely limits Fireman’s Fund’s
standing as persuasive authority or even a helpful analytical rubric. To the
320
Id. at ¶ 202.
321
Id. at ¶200.
322
See id. at ¶ 201 (emphasis supplied).
323
Id. at ¶ 200.
324
See NAFTA, supra note 18, art. 1410 ¶¶ (b)-(c).
325
Even though a tribunal took considerable pains to ensure that it had canvassed the
entire gamut of “expropriation standards” within the NAFTA’s jurisprudence, see id. at ¶
176, it did not undertake a systematic application of law to fact pursuant to which each of
the 11 elements identified was applied to the facts of the case. From an analytical
perspective, this standard was just mentioned but never applied.
326
See id. at ¶ 122 (mentioning the proportionality test).
EAST\64724221. 3118
contrary, it further nourishes uncertainty327 and a “taking sides approach”
that is conducive to “all or nothing” results.328 Similarly, little was
accomplished by way of illustrating the workings particular to a special
public purpose category within the meaning of Chapter Fourteen. These
unsatisfactory results are in large measure prompted by the subjective but
malleable constitution of the legacy public purpose doctrine, which invites
a mild “effects test” to be juxtaposed against an enshrined Host State’s
regulatory space.
The NAFTA jurisprudence has carved a particular space for
“police powers” that, depending on the authority consulted, is different,
but not altogether removed, from public purpose. While the police powers
NAFTA jurisprudence at first appears to contribute an organizing
principle to an entire body of inconsistently applied precepts and
definitions, it actually contributes to adding another layer of uncertainty to
the meaning and role of the public purpose doctrine.
4.
The Police Power Dichotomy and Feldman v. Mexico
Likely compelled by the need to distinguish between regulation
that renders it possible for a sovereign to exercise its sovereignty in
furtherance of more general public interest and an expropriation, the
NAFTA jurisprudence distinctively has relied upon the police powers
nomenclature.329 These cases draw a distinction between public purpose
and police powers but do not articulate any basis for the perceived
doctrinal differences between the two.330 Feldman v Mexico331 is just such
327
Essentially, as one commentator has suggested, the tribunal, “with the sparest of
reasoning, both effectively adopts the proportionality test as stemming from earlier cases
within NAFTA and points out the problems of Tecmed’s incorporation of it...It suggests
that, rather than any kind of stare decisis across arbitrations, a sliding scale of respect for
precedent is warranted depending on the regime context of the earlier decisions.” Steven
R. Ratner, Regulatory Takings in Institutional Context: Beyond the Fear of Fragmented
International Law, 102 Am. J. Int’l L. 475, 527 (2008).
328
The tribunal “neither strayed far from the consensus position under customary
international law—rejecting most claims of regulatory takings—nor proved inconsistent
even within the regime of NAFTA.” Id. at 511.
329
See, e.g., Corn Products Int’l v. United Mexican States, ICSID Case No.
ARB(AF)/04/01, Decision on Responsibility, ¶ 87 (Jan. 15, 2008),
http://italaw.com/sites/default/files/case-documents/ita0244.pdf; Fireman’s Fund, supra
note 167, at ¶ 176; Pope & Talbot, supra note 296, at ¶ 99; Feldman, supra note 291, at
¶¶ 105-106.
330
See, e.g., Fireman’s Fund, supra note 167, at ¶ 176 (listing “whether the measure is
within the recognized police powers of the Host State” and “the (public) purpose and
effect of the measure” as distinct factors for “distinguish[ing] between a compensable
expropriation and noncompensable regulation by a Host State.”).
331
Supra note 291.
EAST\64724221. 3119
a case. In that proceeding the tribunal affirmatively diminished the public
purpose doctrine while relying upon a vague notion of police powers that
it nowhere defines.332 The Feldman Tribunal virtually reduces public
purpose to the status of a non-factor even within the language of Article
1110:
In the Tribunal’s view, the essential determination is
whether the actions of the Mexican Government [Host
State] constitute an expropriation or nationalization, or are
valid government activity. If there is no expropriatory
action, factors (a)-(d) are of limited relevance,333 except to
the extent that they have helped to differentiate between
governmental acts that are expropriation and those that are
332
One possible explanation of the tribunal’s disavowance of public purpose in adoption
of police powers may be attributable to its reliance on the Third ReStatement of the
Foreign Relations Law of the U.S. (“the ReStatement”) from which it draws analytical
support for the proposition that (i) “the public purpose requirement ‘has not figured
prominently in international claims practice, perhaps because the concept of public
purpose is broad and not subject to effective reexamination by other States,’” and (ii) in
distinguishing between a non-compensable government regulation and an expropriation.
Id. at ¶¶ 99, 105. With respect to this latter point, the Tribunal cites directly to the police
power language of the ReStatement, § 712, comment g, which reads:
A State is responsible for an expropriation of property under
Subsection (1) when it subjects alien property to taxation, regulation, or
other action that is confiscatory, or that prevents, unreasonably
interferes with, or unduly delays, effective enjoyment of an alien’s
property or its removal from the State’s territory... a State is not
responsible for loss of property or other economic disadvantage
resulting from bona fide general taxation, regulation, forfeiture for a
crime, or other action of the kind that is commonly accepted as within
the police power of States, if it is not discriminatory....
Id. at ¶ 105 (citing RESTATEMENT (THIRD)
(1987)) (emphasis supplied).
333
OF
FOREIGN RELATIONS LAW § 712 cmt. g
The Award is referencing Chapter 11, Article 1110 subsections (a)-(d) which provide:
1. No Party may directly or indirectly nationalize or expropriate an
investment of an investor of another Party in its territory or take a
measure tantamount to nationalization or expropriation of such an
investment (“expropriation”), except:
(a) for a public purpose;
(b) on a non-discriminatory basis;
(c) in accordance with due process of law and Article 1105(1); and
(d) on payment of compensation in accordance with paragraphs 2
through 6.5.
NAFTA, supra note 18, art. 1110 ¶ 1.
EAST\64724221. 3120
not, or are parallel to violations of NAFTA Articles 1102
and 1105. If there is a finding of expropriation,
compensation is required, even if the taking is for a public
purpose, non-discriminatory and in accordance with due
process of law and Article 1105(1).334
To the extent that the tribunal understands Article 1110 or
customary international law to assert that compensation attaches even
where an expropriation is undertaken for a public purpose, pursuant to due
process and in a non-discriminatory manner, is indistinguishable from
advancing that as to compensability public purpose is irrelevant where an
expropriation has been found.
Terms such as “bona fide,”335 “reasonable governmental
regulation[s],”336 or “commonly accepted government regulations,”337
often are associated with the exercise of a “police power” regulatory
measure that does not support a claim for expropriation. While the tribunal
in Feldman found it necessary to observe that “[n]o one can seriously
question that in some circumstances government regulatory activity can be
in violation of Article 1110,”338 it failed to articulate the boundaries of
public purpose so that a regulatory measure tantamount to an
expropriation can be rendered readily discernible. Indeed, despite
language bolstering the proposition that in some circumstances
government regulatory activity may constitute an expropriation or an act
or series of acts tantamount to an expropriation under Article 1110, the
Tribunal did not find a violation of Article 1110 in the case sub judice
despite acknowledging that claimant had “experienced great difficulties in
dealing with [government] officials,” and had been “treated in a less than
reasonable manner.”339 As to unreasonable and disparate treatment
suffered by claimant at the hands of government tax officials, general
platitudes concerning public policy underlying tax laws, predictive value,
and consistency on the part of tax authorities executing the responsibilities
were advanced:
Unfortunately, tax authorities in most countries do not
always act in a consistent and predictable way… as in most
334
Feldman, supra note 291, at ¶ 98 (emphasis supplied).
335
Id. at ¶ 106
336
Id. at ¶ 103.
337
Id. at ¶ 105.
338
Id. at ¶ 110.
339
Id. at ¶ 113.
EAST\64724221. 3121
tax regimes, the tax laws are used as instruments of public
policy as well as fiscal policy, and certain taxpayers are
inevitably favored, with others less favored or even
disadvantaged.340
It is not a broad construction of the tribunal’s analysis in Feldman to assert
that it is common, and therefore acceptable, for the execution of a State’s
police powers by government officials to lead in some instances to
disparate treatment that materially disadvantages a class of persons and for
those actions seeking to implement regulatory measures to lack
consistency, uniformity, and predictive value. The “police powers”
construction of “public purpose” within the anatomy of international
claims practices generally provides for an even broader veneer with which
to cloak the exercise of actionable regulatory measures that are detrimental
to the protection of foreign investment and investors. This legal fiction is
little more than a pretext for the expansion of regulatory sovereignty. It is
unfortunate and regrettable that the debilities of governmental bureaucratic
execution in connection with the implementation of regulatory measures
are characterized as comprising an essential element of a State’s police
powers.
The expansive construction accorded to police powers has had the
consequence of reducing an Article 1110 analysis to an intensive factdriven undertaking that in turn is to be analyzed against a mercurial legal
standard.341 The expropriatory public purpose character ascribed to
regulatory measures, and particularly to a sovereign’s authority to tax,
further compels vesting police powers (public purpose) with objective
substantive content and brings into the fold the public purpose doctrine
more generally.342 Adding to the all-encompassing configuration of police
340
Id.
341
As noted, supra note 292 in Fireman’s Fund the tribunal aptly observed that no single
expropriation standard common to all cases had been enunciated in the ten arbitral
proceedings that preceded it, thus inviting the Fireman’s Fund tribunal to fashion a
comprehensive, all-encompassing standard that it then failed to apply systematically to
the facts of that case.
Following this very line of thought, the Feldman tribunal acknowledged that “[t]he
Article 1110 language is of such generality as to be difficult to apply in specific cases.”
Feldman, supra note 291, at ¶ 98. Consonant with this vision, it further observed that
“under NAFTA Article 1136(1), ‘[a]n award made by a tribunal shall have no binding
force except between the disputing Parties and in respect of the particular case,’ and that
each determination under Article 1110 is necessarily fact-specific.” Id. at ¶ 107.
342
The expropriatory character ascribed to police power and to specific regulatory
measures such as taxation should not be viewed as per se exculpatory, but rather as
creating a rebuttable presumption that may be overcome depending on the specific public
purpose sought to be served. The Feldman tribunal noted this “expropriatory penchant”
EAST\64724221. 3122
powers within the NAFTA jurisprudence is the view that a State’s
prerogative in a post-market entry to change or modify existing regulatory
schemes to the material detriment of a foreign investor may render an
economic activity “less profitable or even uneconomic to continue,” but
not necessarily constitute an indirect or creeping expropriation under
Article 1110.343
The character and scope that the NAFTA jurisprudence has
engrafted upon a State’s police powers necessarily gives rise to an
inherent presumption of correctness attaching to regulatory acts. This
presumption itself needs to be questioned in the context of a proliferation
of public purpose usages that can only lead to an understandable loss of
confidence in the efficacy of investment protection. It also further
provides rogue States with formal juridical justification for substantive
inequities that rise to the level of illicit conduct. The tribunal in S.D.
Myers, for example,344 and Stated that “[t]he general body of precedent
usually does not treat regulatory action as amounting to expropriation.
Regulatory conduct by public authorities is unlikely to be the subject of
of a sovereign’s taxing authority, but did not link it to the exigency of analyzing it within
the context of an objective public purpose framework:
By their very nature, tax measures, even if they are designed to and
have the effect of an expropriation, will be indirect, with an effect that
may be tantamount to an expropriation. If the measures are
implemented over a period of time, they could also be characterized as
“creeping” which the tribunal believes is not distinct in nature from,
and is subsumed by, the terms ‘indirect’ expropriation or ‘tantamount
to expropriation’ in Article 1110(1).
Id. at ¶ 101.
343
As to this point the Feldman tribunal Stated:
[T]he Tribunal is aware that not every business problem experienced by
a foreign investor is an indirect or creeping expropriation under Article
1110, or a denial of due process or fair and equitable treatment under
Article 1110(1)(c). As the Azinian Tribunal observed, ‘it is a fact of life
everywhere that individuals may be disappointed in their dealings with
public authorities... it may be safely assumed that many Mexican
Parties can be found who had business dealings with governmental
entities which were not to their satisfaction...’ To paraphrase Azinian,
not all government regulatory activity that makes it difficult or
impossible for an investor to carry out a particular business, change in
the law or change in the application of existing laws that make it
uneconomical to continue a particular business, is an expropriation
under Article 1110.
Id. at ¶ 112 (internal citations omitted).
344
S.D. Myers First Partial Award, supra note 137.
EAST\64724221. 3123
legitimate complaint under Article 1110 of the NAFTA, although the
Tribunal does not rule out that possibility.”345 This remarkable Statement
is disconcerting.
Treating regulatory measures as unlikely to constitute conduct
tantamount to an expropriation, where the meaning of the word
“tantamount” within Article 1110(1) only pertains to equivalent of an
expropriation and not more,346 can only generate greater uncertainty and
further contribute to undermining process legitimacy. Consideration of a
State’s police powers should only serve to further principles of symmetry,
bilateralism, and transparency in the relationship between capitalexporting and capital-importing States. Anointing regulatory measures
with a presumption of correctness and legitimacy cannot at all contribute
towards equipoise between home and Host States. The use of
nomenclature such as “police powers” should not serve as a means to
circumvent the public purpose doctrine on the ground that historical
conceptual legacies loosely associate specific State functions (principally
those that can only be undertaken by a sovereign and not an individual
person or juridical entity) to legitimize a State’s violation of its treaty
obligations to foreign investors.347 Both analytically and substantively
police powers and the public purpose should be considered as one and the
same, each encompassing an identical scope.
In assessing whether a regulatory measure constitutes an
expropriation or the equivalent to an expropriation, both burdens and
presumptions must be inverted to favor a claimant where substantial
prejudice to an investment/investor is established or conceded. At that
345
Id. at ¶ 281.
346
The NAFTA jurisprudence is of a single voice in agreeing that “tantamount to
expropriation” within the meaning of Article 1110(1) does not extend beyond the
customary scope of the term expropriation under international law, and simply means
“equivalent,” and not greater than, an expropriation. See, e.g. id. at ¶¶ 285-286;
Fireman’s Fund, supra note 167, at ¶ 176 n.159 (“According to certain case law, the
expression ‘a measure tantamount to nationalization or expropriation’ in Article 1110 of
the NAFTA means nothing more than ‘a measure equivalent to nationalization or
expropriation.’”) (citations omitted); see also Cargill, Inc. v. United Mexican States,
ICSID Case No. ARB(AF)/05/2, Award, ¶ 335 (Sept. 18, 2009),
http://www.italaw.com/sites/default/files/case-documents/ita0133_0.pdf; Pope & Talbot,
supra note 296, at ¶¶ 96, 104; Feldman, supra note 291, at ¶ 100.
347
One reason for not providing unyielding deference to this broad exception is that the
scope of the police powers exception has never been fully developed at international law.
Jason L. Gudofsky, Shedding Light on Article 1110 of the North American Free Trade
Agreement (NAFTA) Concerning Expropriations: An Environmental Case Study, 21 NW.
J. INT’L L. & BUS. 243, 295 (2000) (“The full scope of the police powers exception under
international law has not yet been fully developed. More case law and attention must be
devoted to the exception.”).
EAST\64724221. 3124
time scrutiny is to be equally placed on the effect that a measure has on
the investment as concerning more than just a “mere diminution in value,”
as well as on the nature and extent to which the measure comports with a
substantively objective public purpose category. The current NAFTA
jurisprudence completely effaces consideration of this second component
in favor of a non-rebuttable and virtually boundless public purpose
category reconfigured with “police powers” nomenclature.
5.
Reflections on Conventional International Law’s Use of
Public Purpose
Having analyzed the public purpose doctrine within the
conventional international law framework of the NAFTA it becomes
readily apparent that the doctrine’s morphology is both elusive and
perhaps even ostensibly contradictory. Despite the merits of Article
1101(4)348 (the NAFTA Public Purpose Standard), the workings of a
public purpose category within Chapter Fourteen,349 and the jurisprudence
interpreting and applying public purpose within the meaning of Article
1110, the very elements of public purpose at rudimentary levels remain illdefined. This problem is far-reaching. It suggests that the pivotal principle
governing the effects of regulatory sovereignty on foreign investment
protection remains under developed and in pragmatic and theoretical terms
reduced or wrongfully elevated, to the status of a self-evident principle. A
conceptual category that no longer can account for the burdens that
regulatory sovereignty and economic globalization have placed on public
purpose analysis.
The subjective content of public purpose in its historical legacy
iteration purports to be broad, i.e., as generally concerning the public
welfare such that any conflicting interest pertaining to the protection of a
foreign investment/investor would be vastly outweighed by the purported
public purpose in furtherance of the common good. A broad subjective
based conceptualization of the doctrine, even within the NAFTA’s
conventional international law context, cries for greater specificity, clarity,
and definition.350 This problem is meaningfully compounded because the
broad public purpose category, “in furtherance of the general welfare,” in
turn is premised on a Host State’s very particular understanding of public
purpose. Therefore, this functional all-encompassing public purpose
framework, pursuant to which any reasonable relationship between a
348
See supra notes 22-25 & accompanying text.
349
See supra Chapter 1.F.
350
Kevin Banks, NAFTA’s Article 1110—Can Regulation Be Expropriation?, 5 NAFTA:
L. & BUS. REV. AM. 499, 510 (1999) (noting that “the range of public purposes included
within the police power appears to be wide and relatively undefined.”).
EAST\64724221. 3125
State’s undertaking and a “public consequence” constitutes a “public
purpose” within conventional international law, also includes a restrictive
character arising from a State’s subjective understanding of public
purpose.351 “Public purpose” thus is transformed and denaturalized into
“political purpose,” a purpose that does not necessarily further a State’s
common welfare but rather some (less likely all) of its administrative
institutions.352 This denaturalization of public purpose shall continue to
become more destabilizing to the investment-treaty and dispute resolution
development of an integrated, interdependent paradigm of resources and
economic coexistence. Indeed, public purpose has devolved into a
substantively bankrupt doctrine that is nearly eviscerating itself.
Are the teachings of conventional international law, albeit through
the lens of the NAFTA, with respect to the public purpose doctrine
rendered more developed or clearer by customary international law? Are
there competing definitions of public purpose in conventional international
law and customary international law? If so, how may these differences be
harmonized? Is the architecture of conventional international law more
conducive to articulating a public purpose doctrine that may meaningfully
serve to harmonize the competing underlying policies of international
trade law and international investment law? Has, in fact, customary
international law given rise to a public purpose doctrine capable of
reconciling conflicting interests concerning the legitimate expectations of
foreign investors and Host State obligations to exercise their regulatory
authority to protect or enhance the public welfare? Is there a public
purpose doctrine that customary international law identifies, and, if so, is it
vested with a content that leads to uniformity, predictability, and
transparency of standard? Is the public purpose doctrine premised on a
customary international law the same or similar to that codified in the
NAFTA and presumably developed by the NAFTA’s decisional-law? Is
the legacy public purpose doctrine found in customary international law
suited to mitigating competing expectations between capital-exporting and
capital-importing countries, or, as with its conventional international law
counterpart, crafted a doctrinal category that unduly promotes regulatory
sovereignty to the detriment of foreign investments/investors?
351
Id. at 510 (suggesting that “deference can be expected from international tribunals in
the face of a State’s assertion of a public purpose.”).
352
See, e.g., Jason Webb Yackee, Do Bilateral Investment Treaties Promote Foreign
Direct Investment? Some Hints from Alternative Evidence, 51 VA. J. INT’L L. 397, 399400 (2011) (“If investment treaties are important elements in the foreign investment
decision-making process because they protect against the risk of adverse political actions
(like expropriation), it might be expected that companies whose line of business is to
gauge such risks will incorporate the presence or absence of treaties into their
evaluations.”).
EAST\64724221. 3126
Addressing all of these queries, let alone meaningfully purporting
to answer them, is beyond this text’s aspiration. Having canvassed the role
of the public purpose within the framework of conventional international
law as it appears in the NAFTA, the necessary question is whether
customary international law reveals a different public purpose doctrine,
and the extent to which it separates itself from the NAFTA’s conventional
international law iteration, as well as the pronouncements and role of the
doctrine in the NAFTA’s decisional law. This inquiry does find space in
this contribution. A related analysis addresses the grounds for the
differences as to scope in the doctrine as it appears in these two sources of
international law. The nature of the source of law, so it shall be asserted, is
material to the doctrine’s morphology.
The anatomy of customary international law is particularly
relevant. It will be advanced that the longstanding debilities endemic to
the very structure of customary international law merely serve to
compound the lack of predictive value and universal definition that now
pervades the orthodox public purpose legacy doctrine. It also shall be
demonstrated that the public purpose doctrine’s status as represented in
international instruments unduly amplifies regulatory sovereignty, thereby
exacerbating the very challenge that the public purpose doctrine seeks to
overcome. The historicity arising from the process of political and
economic decolonization has given rise to such principles as (i)
sustainable development and (ii) permanent sovereignty over natural
resources, both of which aim to assist underdeveloped countries and
economies in transition. These principles, themselves experiencing
refining and doctrinal development, are emblematic of a broader, if not
nearly all-encompassing, public purpose doctrine. Although contained in
multiple public international law instruments, both principles are yet to be
uniformly defined, let alone applied. It follows, so the argument says, that
the customary international law iteration of the public purpose doctrine
generally multiplies the vagueness and inadequacies with which its
conventional international law counterpart struggles at a more limited
scale. Because of customary international law’s unique structural features,
lacking in centralized legislating, decision making, and wanting in
enforcement capacity, there is no basis from which to infer that it may be
capable of at all addressing the doctrinal needs of the public purpose
doctrine. A brief analysis of customary international law with emphasis on
these framework features is necessary if public purpose is at all to be
understood within this context. More specifically, it is necessary to
identify the evidence of public purpose within the ambit of customary
international law.
EAST\64724221. 3127
CHAP
PTER 2
Identifying Publiic Purpose in
i Customaary Internattional Law: Select
Intern
national Insstruments
EAST\64
4724221.3
128
A.
The Place of the Public Purpose Doctrine in Customary
International Law
1.
Revisiting Fundamentals of Customary International
Law
The classical point of departure for any discussion on customary
international law is Article 38 of the Statute of the International Court of
Justice (“ICJ”), which identifies “‘international custom’ as evidence of a
general practice accepted as law.”353 The “general practice” refers to the
practice of States354 and must in turn be undertaken by States (most but
not all members of the international community)355 as a binding legal
353
The Statute of the ICJ forms an integral part of the Charter of the United Nations. The
Statute’s objective is to provide a framework for the ICJ’s composition and general
workings. Article 7 of the United Nations Charter, among other organs, provides for the
International Court of Justice. Article 93 of the Charter of the United Nations provides
that “all members of the United “Nations are ipso facto parties to the Statute. Nonmembers... may become parties to the Statute and conditions to be determined. In each
case by the General Assembly upon the recommendation of the Security Council. The
underlying assumption is that the world political organization, already possessed of
organs with executive, deliberative and administrative functions, would be incomplete
unless it also had a fully integrated judicial organ of its own.” SHABTAI ROSENNE, THE
WORLD COURT: WHAT IT IS AND HOW IT WORKS 1, 26 (Martinus Nijhoff Publishers, 5th
ed. 1994).
Article 38 of the ICJ Statute reads:
1. The Court whose function is to decide in accordance with
international law such disputes as are submitted to it, shall apply:
a. international conventions, where a general or a particular,
establishing rules expressly recognized by the contesting
States;
b. international custom, as evidence of a general practice
accepted as law;
c. the general principles of law recognized by civilized
nations;
d. subject to the provisions of Article 59, judicial decisions
and the teachings of the most highly qualified publicists of the
various nations, as subsidiary means for the determination of
rules of law.
2. This provision shall not prejudice the power of the Court to decide a
case ex aequo et bono, if the parties agree thereto.
I.C.J. Statute art. 38, paras. 1-2 (emphasis supplied).
354
North Sea Continental Shelf Cases, 1969 I.C.J. 3, 232 (Lachs, J., dissenting) (Feb. 20)
(“In sum, the general practice of States should be recognized as prima facie evidence that
it is accepted as law.”).
355
Id. at 43-44 (majority opinion); see also Kiobel v. Royal Dutch Petroleum Co., 621
F.3d 111, 137 (2d Cir. 2010) (“Although all treaties ratified by more than one State
provide some evidence of the custom and practice of nations, ‘a treaty will only constitute
EAST\64724221.3
129
obligation.356 This normative binding character of customary international
law does not require the explicit acceptance of it by a State compelled to
follow it.357 Brownlie observes that the terms “custom” and “usage,”
although “used interchangeably” also “are terms of art and have different
meanings. A usage is a general practice [that] does not reflect a legal
obligation, and examples are ceremonial salutes at sea and the practice of
exempting diplomatic vehicles from parking prohibition.”358
The ReStatement of the Law Third, the Foreign Relations Law of
the United States draws a distinction between general and special custom.
“Special” customary law arises from a “regional” or “special” grouping
that in turn gives rise to regional customary law as binding on States of a
particular region. Drawing on the Asylum Case359 it notes that the State
sufficient proof of a norm of customary international law if an overwhelming majority of
States have ratified the treaty, and those States uniformly and consistently act in
accordance with its principles.’) (emphasis in original) (citation omitted); Flores v. S.
Peru Copper Corp., 414 F.3d 233, 248 (2d Cir. 2003) (“In short, customary international
law is composed only of those rules that States universally abide by, or accede to, out of a
sense of legal obligation and mutual concern. Of course, States need not be universally
successful in implementing the principle in order for a rule of customary international
law to arise. If that were the case, there would be no need for customary international
law. But the principle must be more than merely professed or aspirational.” Of course,
States need not be universally successful in implementing the principle in order for a rule
of customary international law to arise. If that were the case, there would be no need for
customary international law. But the principle must be more than merely professed or
aspirational.”) (internal citations omitted).
356
RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 102(2) (1987) (“Customary
international law results from a general and consistent practice of States followed by
them from a sense of legal obligation.”); see also North Sea Continental Shelf Cases,
1969 I.C.J. at 44 (“Not only must the acts concerned amount to a settled practice, but they
must also be ... carried out in such a way as to be evidence of a belief that this practice is
rendered obligatory by the existence of a rule of law requiring it.”); see also Flores, 414
F.3d at 248 (“Furthermore, a principle is only incorporated into customary international
law if States accede to it out of a sense of legal obligation.”).
357
Even though customary international law follows conventional international law as
Article 38 enunciates them, both conventional international law and customary
international law share in the same normative standing i.e., they are both equally
authoritative. See, e.g., Phillip R. Trimble, A Revisionist View of Customary International
Law, 33 UCLA L. REV. 665, 669 (1986).
However, customary international law is not without its critics. J. Patrick Kelly, The
Twilight of Customary International Law, 40 VA. J. INT’L L. 449, 452 (2000) (arguing
that customary international law “should be eliminated as a source of international legal
norms and replaced by consensual processes.”).
358
IAN BROWNLIE, PRINCIPLES OF INTERNATIONAL LAW 1, 6 (Oxford University Press,
7th ed. 2008) (citing Parking Privileges for Diplomats Case, Federal Republic of
Germany, Fed. Admin. Ct., 70 ILR 396 (Jan. 22, 1971)).
359
Asylum Case (Columbia v. Peru), 1950 I.C.J. 266 (Nov. 20th).
EAST\64724221. 3130
alleged to be bound must have accepted or acquiesced in the custom as a
matter of legal obligation, not merely for reasons of political
expediency.”360
While the source for customary international law rests with Article
38 of the ICJ Statute, the material evidence from which custom and a
consistent practice on the part of States may be gleaned is vast. Brownlie
notes that it may include:
[D]iplomatic correspondence, policy Statements, press
releases, the opinions of official legal advisors, official
manuals on legal questions, e.g., manuals of military law,
executive decisions and practices, orders to naval forces
etc., comments by governments on drafts produced by the
International Law Commission, State legislation,
international and national judicial decisions, recitals in
treaties and other international instruments, a pattern of
treaties in the same form, the practice of international
organs, and resolutions relating to legal questions in the
United Nations General Assembly.361
The manner in which principles or rules become international law rising to
the status of binding customary international law, in turn defines
normative standing or the weight to be accorded to such precepts. Thus,
the means of establishing from an evidentiary perspective that a
“customary rule” has developed into customary international law depends
upon primary evidence such as State practice as memorialized in official
government documents and other indicia of government practice, and
secondary evidence mostly in the form of authoritative commentators and
reporters.362
360
RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 102 cmt. e (1987). Section
102(2) defines customary law as by drawing on “consistency in the practice giving rise to
a binding principle of law,” and “a sense of legal obligation.” Id. § 102(2) (1987)
(“Customary international law results from a general and consistent practice of States
followed by them from a sense of legal obligation.”) (emphasis supplied).
361
BROWNLIE, supra note 360, at 6-7
362
Without purporting to establish hierarchy in the order of the clause, Section 103(2) of
the ReStatement references secondary evidence:
(2) In determining whether a rule has become international law,
substantial weight is accorded to
a. the judgments and opinions of international judicial and
arbitral tribunals;
b. the judgments and opinions of national judicial tribunals;
c. the writings of scholars;
d. pronouncements by States that undertake to State a rule of
EAST\64724221. 3131
Even though these elements of custom are readily identifiable,363
the premises comprising these elements are far from clear and susceptible
to interpretation.364 The less than “bright-line standard” incident to the
international law, when such pronouncements are not
seriously challenged by other States.
RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 103(2) (1987).
363
Commentators tend to agree that (i) duration of the practice at issue, (ii) uniformity
and consistency of the practice, (iii) generality of the practice, (iv) opinio juris, and (v)
protest and acquiescence. See BROWNLIE, supra note 360, at 7-10; MALCOLM N. SHAW,
INTERNATIONAL LAW 1, 72-93 (Cambridge University Press, 6the ed. 2008);
RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW § 103 cmt. a-c (1987).
364
By way of example, the required duration is wholly undetermined. While a protracted
amount of time is preferred and of obvious benefit, there is no specific time frame
requirement. In fact, Shaw speaks of “instant” customary law pursuant to which
normative standing is attained without any meaningfully long gestation period. SHAW,
supra note 365, at 74.
For example, in holding that Article 6 of the Geneva Convention on the Continental Shelf
of 1958, which provided for the equidistance-special circumstances principle had not yet
formed part of customary law, and, therefore, was not binding on West Germany, the ICJ
observed:
An indispensable requirement would be that within the period in
question, short though it might be, State practice, including that of
States whose interests are specially affected, should have been both
extensive and virtually uniform in the sense of the provision invoked,
and should moreover have occurred in such a way as to show a general
recognition that a rule of law or legal obligation is involved.
North Sea Continental Shelf Cases, 1969 I.C.J. 3, 41 (Feb. 20). The “uniformity,
consistency of the practice” element is equally undetermined. While most
commentators agree that complete uniformity simply is not a predicate, the general
consensus does require “substantial uniformity” a term that is hardly distinct or
particular. Thus, in the Fisheries Case, concerning the question whether the tenmile rule for bays constitute custom international law, the Court Stated:
In these circumstances the Court deems it necessary to point out that
although the ten-mile rule has been adopted by certain States both in
their national law and in their treaties and conventions, and although
certain arbitral decisions have applied as between these States, other
States have adopted a different limit. Consequently, the ten-mile rule has
not acquired the authority of a general rule of international law. In any
event, the ten-mile rule would appear to be inapplicable as against
Norway inasmuch as she has always opposed any attempt to apply it to
the Norwegian coast.
Fisheries Case (U.K. v. Norway), 1951 I.C.J. 116, 131 (Dec. 18) (emphasis supplied). In
that case, (i) the disparate adoption of the rule by the community of countries and (ii)
Norway’s longstanding objection to imposition or adoption of the rule with respect to its
coastline negated application and, more importantly, mitigated against a finding that the
ten-mile rule had met the customary international law threshold.
EAST\64724221. 3132
Opinio juris is perhaps the most elusive tenet of the customary practice elements
because it is essentially subjective. Its cornerstone proposition, that a particular practice
shall not attain customary international law status unless the country engaging in the
practice believes that it is legally bound to adhere to the practice at issue. Shaw succinctly
States it as “States will behave a certain way because they are convinced it is binding
upon them to do so.” SHAW, supra note 365, at 74. The manner in which a State views
and understands its own conduct presents virtually insurmountable challenges. How is a
State’s conduct to be examined in order to determine whether the State deems a recurring
practice legally obligatory and in this way transforms a usage into a binding custom? In
the Case of the S.S. Lotus, the ICJ’s predecessor, the Permanent Court of International
Justice, rejected France’s contention that customary international law recognizes a rule
providing that in a maritime accident occurring in international waters the country of the
flag State of the accused has exclusive jurisdiction over the national State of the victim.
The French government premised abstention from criminal prosecutions arising from
collision cases of this sort, that more frequently are brought before civil courts. The
French went on to conclude that the paucity of such cases gives rise to an inference of
State practice pursuant to which prosecutions only take place within the courts of the
State whose flag is flown. It was on this factual predicate that France also relied on to
demonstrate tacit consent among the international community of States. Case of the S.S.
Lotus, 1927 P.C.I.J. (ser. A) No. 10, at 18 (Sept. 7). The Court noted that:
[T]his conclusion is not warranted. Even if the rarity of the judicial
decisions to be found among the reported cases were sufficient to prove
in point of fact the circumstance alleged by the Agent for the French
Government , it would merely show that States had often, in practice,
abstained from instituting criminal proceedings, and not that they
recognized themselves as being obliged to do so; for only if such
abstention were based under being conscious of having a duty to
abstain would be possible to speak of an international custom. The
alleged fact does not allow one to infer that States have been conscious
of having such a duty; on the other hand, as will presently be seen,
there are other circumstances calculated to show that the contrary is
true.
Id. at 28 (emphasis supplied).
In the North Sea Continental Shelf Cases, the Netherlands sought to impose on
West Germany the “equi-distance-special circumstances principle” in conformance with
Art. 6 of the Geneva Convention on the Continental Shelf of 1958, as part of the general
process of delimiting the Continental Shelf of the North Sea in furtherance of oil and gas
exploration and exploitation. Because West Germany had neither signed nor ratified the
1958 Geneva Convention, it was not found by that instrument. Accordingly, the extent
to which the delimiting principle in Article 6 of the Geneva convention constituted
customary international law became the case dispositive issue. The ICJ ruled in favor of
West Germany and rejected arguments that the principle formed part of customary
international law, either before or after the execution of the Geneva Convention on the
Continental Shelf. The Court’s reasoning as to opinio juris and the requisite time frame
for normative rule making is instructive:
Insofar as this contention is based on the view that Art. 6 of the
Convention has had the influence, and has produced the effect,
described [normative standing of the principle as part of customary
international law], it clearly involves treating that Article as a normcreating provision which has constituted the foundation of, or has
EAST\64724221. 3133
very elements that serve as a standard for determining whether a rule,
principle or doctrine rises to the level of a custom and in turn evinces a
“general State practice” thus acquires the requisite normative standing to
constitute binding customary international law is a concern that affects the
status of the public purpose doctrine within a customary international law
framework. In this regard, debilities pertaining to process legitimacy
cannot be segregated from effects on the substantive rule at issue (here the
public purpose doctrine).
B.
Foundational Concerns Endemic to Customary International
Law Challenging the Development of a Public Purpose
Doctrine
In any effort to sketch a profile of public purpose as a doctrine
forming part of customary international law, it is necessary to identify
features of customary international law that may contribute to obscuring
the actual content, application, and development of the public purpose
doctrine. It is central to any inquiry seeking to address public purpose
within the context of customary international law to emphasize these
unique elements of uncertainty that pervade customary international law in
order to select a source for the conduct of nations that may best articulate
generated a rule which, while only conventional or contractual in its
origin, has since passed into the general corpus of international law,
and is now accepted as such by the opinio juris, so as to have become
binding even for countries which have never and do not become parties
to the Convention. There is no doubt that this process is a perfectly
possible one and does from time to time occur: It constitutes indeed,
one of the recognized methods by which new rules of customary
international law may be formed. At the same time this result is not
likely to be regarded as having been attained....
As regards the time element, the Court notes that it is over ten years
since the Convention was sign, but that it is even now less than five
since it came into force in June of 1964, and that when the present
proceedings were brought it was less than three years, while less than
one had elapsed at the time when the respective negotiations between
the Federal Republic [the former West Germany] and the other two
Parties for a complete delimitation broke down on the question of the
application of equidistance principle. Although the passage of only a
short period of time is that necessarily or of itself, a bar to the
formation of a new rule of customary international law on the basis of
what was originally a purely conventional rule, an indisputable
requirement will be that within the period in question, short though it
may be, State practice, including that of States whose interests are
specifically affected, should have been both extensive and virtually
uniform in the sense of the provision invoked; — and should moreover
have occurred in such a way as to show a general recognition that a
rule of law or legal obligation is involved.
North Sea Continental Shelf Cases, 1969 I.C.J. at 41, 44 (Feb. 20) (emphasis supplied).
EAST\64724221. 3134
the scope and content of the public purpose doctrine. Such an element of
proof can be evaluated despite the structural ambiguities of this normative
system. In commenting on the contrast between international law
generally and the domestic law of States, Shaw rightfully observes:
The contrast is very striking when one considers the
situation in international law. The lack of a legislature,
executive and structure of courts within international law
has been noted and the effects of this will become clearer
as one proceeds. There is no single body able to create laws
internationally binding upon everyone, nor a proper system
of courts with comprehensive and compulsory jurisdiction
to interpret and extend the law.One is therefore faced with
the problem of discovering where the law is to be found
and how one can tell whether a particular proposition
amounts to a legal rule. This perplexity is reinforced
because of the archaic nature of world affairs in the clash of
competing sovereignties. Nevertheless, international law
does exist and is ascertainable. There are ‘sources’
available from which the rules may be extracted and
analysed.365
This lack of institutional centralization and policy-making is amplified and
ever apparent in the context of customary international law.
As a point of departure, whether a generally accepted State
practice is discernible at all constitutes a legitimate question that cannot be
readily and fully satisfied. What is the governing phenomenology? A State
practice uniformly repeated by a sovereign over time may be causally
connected to specific non-permanent circumstances. Similarly, is a
practice arising from the exercise of comity, by way of example,
suggestive of a legal rule? It is unclear how and under what circumstances
what ostensibly appears to be a general State practice actually becomes a
legal principle, rule, or tenet. Inference from phenomenon alone cannot be
deemed to be wholly conclusive.366
365
SHAW, supra note 365, at 70.
366
See J. Patrick Kelly, The Twilight of Customary International Law, 40 VA. J. INT’L L.
449, 453 (2000) (“Customary law may be discerned through the inductive method.
Norms may be inferred from repeated and consistent acts that are believed to be required
by a community, but customary law is not State practice. It is the community-wide belief
that a norm is legally required that provides customary law with authority and legitimacy.
The asserted CIL norms of the literature, however, are declared without either general,
consistent practice or clear evidence that the vast majority of States have accepted the
norm as a legal obligation. In short, CIL norms are not customary.”) (footnotes omitted);
Andrew T. Guzman, Why LDCs Sign Treaties That Hurt Them: Explaining the
Popularity of Bilateral Investment Treaties, 38 VA. J. INT’L L. 639, 685-86 (1998) (“The
EAST\64724221. 3135
The discernibility of State action or conduct rising to the level of
customary international law is further obscured because of the very nature
of a State. The surface and unavailing analogy between a State and a
biological self-sustained organism is not helpful. A sovereignty comprises
thousands of binding agencies, instrumentalities, governmental
departments, and officials through which State’s act. Moreover, political
regimes and their policy agendas are but a passing phenomenon. The
inevitable question is raised. Which acts or omissions and by whom within
a State unquestionably reflect the imprimatur of the State? Can this
inquiry be meaningfully addressed despite the less than uniform
configurations of State governments administering the interests of
disparate cultures and stages of industrial and economic development?
These concerns directly affect the public purpose doctrine.
In the context of competing interests, contradictory acts by
different government instrumentalities, agencies, departments, and
officials, at what point does a discernible act of omission give rise to the
emergence of a new norm of customary international law? The corollary
to this query is equally intriguing. What is the talisman for determining
that an existing tenet of customary international law has been modified or
altogether disallowed?367 Customary international law often is praised
because of its flexibility and dynamic architecture. Yet, at what point is a
precept in its original configuration no longer binding?368
In the creation of new customary international law, how may the
workings of opinio juris be reconciled?369 Opinio juris requires a State
States concerned must therefore feel that they are conforming to what amounts to a legal
obligation. The frequency, or even habitual character of the acts is not in itself enough.
Therefore, in the words of another scholar, ‘the repetition of common clauses in bilateral
treaties does not create or support an inference that those clauses express customary law. .
. . To sustain such a claim of custom one would have to show that apart from the treaty
itself, the rules in the clauses are considered obligatory.’”) (footnotes omitted).
367
See Anthea Elizabeth Roberts, Traditional and Modern Approaches to Customary
International Law: A Reconciliation, 95 AM. J. INT’L L. 757, 784 (2001) (“The formation
and modification of custom is an uncertain process because international law lacks an
authoritative guide as to the amount, duration, frequency, and repetition of State practice
required to develop or change a custom.”).
368
Jack L. Goldsmith & Eric A. Posner, A Theory of Customary International Law, 66 U.
CHI. L. REV. 1113, 1114 (1999) (“CIL remains a puzzle. It lacks a centralized lawmaker,
a centralized executive enforcer, and a centralized, authoritative decisionmaker. The
content of CIL seems to track the interests of powerful nations. The origins of CIL rules
are not understood. We do not know why nations comply with CIL, or even what it
means for a nation to comply with CIL. And we lack an explanation for the many
changes in CIL rules over time.”).
369
“[F]or a new customary rule to be formed, not only must the acts concerned ‘amount
to a settled practice’, but they must be accompanied by the opinio juris sive necessitatis.”
EAST\64724221. 3136
practice that conforms with established law. How then may a new
customary international law principle develop if by definition it could not
have formed part of a pre-existing legal canon, i.e., a practice that was not
previously regarded as constituting evidence of law?370
While international law generally suffers from lack of centralized
authority at norm creation, application, and enforcement, this feature is
minimized in the context of conventional international law and arguably
maximized as to customary international law. Conventional international
law makes up in structure what it lacks in radius coverage. Even within a
rubric of a multinational agreement, conventional international law is
limited to signatory nations only. Treaties such as the NAFTA and the
DR-CAFTA,371 to draw on two widely consulted examples, will contain
dispute resolution provisions and well-defined frameworks purporting to
memorialize the underlying policy and intent of the signatory parties with
respect to technical execution. At least in theory, the decisional law arising
from the international dispute mechanisms of treaty law further help refine
interpretation of terms in conformance with the intent of the signatory
parties. No such frameworks are available to customary international law.
It lacks treaty negotiating history, structured terms, and disputeenforcement mechanisms, all within the context of not enjoying the
benefits of a decisional law that purports to have persuasive authority
when refining the intent of the signatory parties.372
Some of the most fundamental questions pertaining to customary
international law remain as opaque as when first raised by classical
Military & Paramilitary Activities in and against Nicaragua (Nicar. v. U.S.), Judgment,
1986 I.C.J. 14, 108-09 (June 27).
370
SHAW, supra note 365, at 87-88.
371
Dominican Republic-Central America-United States Free Trade Agreement, Aug. 5,
2004,
http://www.ustr.gov/Trade_Agreements/Bilateral/CAFTA/CAFTADR_Final_Texts/Section_Index.html [hereinafter DR-CAFTA].
372
John A. Perkins, The Changing Foundations of International Law: From State
Consent to State Responsibility, 15 B.U. INT’L L.J. 433, 472-73 (1997) (“Customary
international law is not the instrument to which States now look in the development of
purely consensual obligations, whatever the reality may have been at the time of the
development of the sovereignty/consent thesis. A complex web of explicit contractual
arrangements has developed a framework and rules for international trade, investment
and finance. The occasion to invoke customary international law arises precisely where
consensual arrangements are lacking or fall short and precisely because perceived unmet
needs of the international community call for invoking a concept of binding law. This is
evident in the familiar dynamic by which resort is made to ‘soft law’ declarations in an
opinio juris building process looking to the development of binding customary
international law.”).
EAST\64724221. 3137
scholarship.373 The very origins of customary international law remain
unclear.374 Equally bewildering is the basic question of why nations
comply with customary international law or what State acts count as
evidence of customary international law? Is there such a thing as a
recurring State practice generally accepted by nations that does not rise to
the level of customary international law?375
These structural features represent uncertainties that themselves in
turn create ambiguities in the theoretical and practical assessment of the
normative standing of customary international law. Commentators appear
to fall into three relatively distinct schools of thought as to foundational
normative standing. A considerable number of scholars opine that
customary international law’s procedural shortcomings inhibit its ability to
respond and adjust to rapid changes, for example, in the international law
of human rights, trade, and investment.376 A second representative class
373
“For Grotius, international law had two sources: (1) the law of nature and (2) mutual
consent--or, in his terms, ‘the law of nations.’ These two sources, however, were deeply
and inextricably intertwined. An observed custom could be evidence of either a principle
derived from the law of nature or of mutual consent. Rules of international law could be
derived from natural reason, but customary international law was also evidence of what
natural reason required. Grotius’s framework married custom and reason, imbuing the
practice and opinio juris of States with great power and legitimacy.” Harlan Grant Cohen,
Finding International Law: Rethinking the Doctrine of Sources, 93 IOWA L. REV. 65, 80
(2007) (internal footnotes omitted)..
374
Jack L. Goldsmith & Eric A. Posner, A Theory of Customary International Law, 66 U.
CHI. L. REV. 1113, 1114 (1999) (noting that the “origins of CIL rules are not
understood”).
375
Id. (“CIL’s standard definition raises perennial, and unanswered, questions. It is
unclear which State acts count as evidence of a custom, or how broad or consistent State
practice must be to satisfy the custom requirement. It is also unclear what it means for a
nation to follow a custom from a sense of legal obligation, or how one determines
whether such an obligation exists.”).
376
For example, “[a]s recently as 1970, the International Court of Justice in the
Barcelona Traction case found it ‘surprising’ that the evolution of international
investment law had not gone further and that no generally accepted rules had yet
crystallized in light of the growth of foreign investments and the expansion of
international activities by corporations in the previous half-century.” Jeswald W.
Salacuse & Nicholas P. Sullivan, Do BITS Really Work?: An Evaluation of Bilateral
Investment Treaties and Their Grand Bargain, 46 HARV. INT’L L.J. 67, 68 (2005) (citing
Barcelona Traction Light & Power Co., Ltd. (Belg. v. Spain) 1970 I.C.J. 3, 46-47 (Feb.
5)).
One primary reason for this deficiency was that “applicable international law failed to
take account of contemporary investment practices and address important issues of
concern to foreign investors.” Id. (footnote omitted). Another issue was that “the
principles that did exist were often vague and subject to varying interpretations. Thus,
although there was strong evidence that customary international law required the
payment of compensation upon nationalization of an investor’s property, no principles
had crystallized on how that compensation was to be calculated.” Id. at 68-69 (footnote
EAST\64724221. 3138
holds a diametrically opposite view. These commentators emphasize the
decentralized configuration of customary international law as a flexible
and universally accommodating phenomenon capable of generating quick
and efficient principles in response to changing circumstances.377 Yet, the
“democratic character” of customary international law is viewed by a
considerable number of voices as having an impromptu and much-desired
character pursuant to which custom is generated in ways that reflect
legitimate social interests. Despite enshrining custom as a welcomed tenet,
it is recognized that custom’s ability to provide uniformity and serve as a
principle of integration of disparate and often competing social, political,
omitted). See also Karen Halverson Cross, Converging Trends in Investment Treaty
Practice, 38 N.C. J. INT’L L. & COM. REG. 151, 157-58 (2012) (“Since customary
international law was inadequate to provide meaningful protection to foreign investors,
the United States and other capital-exporting countries concluded BITs with
underdeveloped countries in order to create binding international commitments where
customary international law standards were inconclusive or non-existent.”) (footnotes
omitted); Eric Gottwald, Leveling the Playing Field: Is It Time for A Legal Assistance
Center for Developing Nations in Investment Treaty Arbitration?, 22 Am. U. Int’l L. Rev.
237, 242 (2007) (“Given the shortcomings of the customary international law, the United
States and other capital-exporting nations turned to signing investment treaties to provide
a source of clear and certain rules on foreign investment.”); John K. Setear, Treaties,
Custom, Iteration, and Public Choice, 5 CHI. J. INT’L L. 715, 721 (2005) (“Customary
international law thus suffers from a lack of temporally distinct iterations and from
ambiguous mechanisms for indicating formal consent....Because practice figures so
prominently in defining customary rules, any change in such rules can only be effectuated
after a period during which neither the old nor the new rule clearly governs. While a new
rule articulated in a treaty takes full effect when the treaty enters into force, a new
customary international legal rule has no discrete activation date.”); J. Steven Jarreau,
Anatomy of A Bit: The United States - Honduras Bilateral Investment Treaty, 35 U.
MIAMI INTER-AM. L. REV. 429 (2004) (“Foreign direct investment influences the world
economy by promoting the transfer of capital, technology and managerial skills,
improving economic efficiency through greater competition and enhancing market
access. The United States and Honduras, appreciating the benefits of foreign direct
investment (FDI) while mindful of the shortcomings of customary international law and
the absence of a multilateral accord on FDI, entered into negotiations to promote and
protect foreign investment in their respective countries.”) (footnotes omitted).
377
John O. McGinnis & Ilya Somin, Should International Law Be Part of Our Law?, 59
STAN. L. REV. 1175, 1221-1222 (2007) (“Under certain conditions, customary law is
likely to produce norms that increase efficiency. Customary norms under this theory
evolve to create surpluses as interacting individuals or entities choose those norms that
will provide them with the greatest possible increases in wealth. Accordingly, some have
argued by analogy that customary international law is efficient.”); Anthony D’Amato,
Modifying U.S. Acceptance of the Compulsory Jurisdiction of the World Court, 79 AM. J.
INT’L L. 385, 402 (1985) (“The rules of international law covering these subjects were
not imposed on States from on high, but rather grew out of their interactions over
centuries of practice and became established as customary international law. Thus the
rules, almost by definition, are the most efficient possible rules for avoiding international
friction and for accommodating the collective self-interest of all States.”) (footnotes
omitted).
EAST\64724221. 3139
economic, and cultural forces now experiencing
transformations, is limited and restrictive.378
unprecedented
Galvanized by custom as its organizing principle, the configuration
of customary international law can be seen as a daunting mosaic in
progress. So long as a State’s act, omission, publication, official
Statement, legislative decree, domestic political institutions, or
international projection of whatsoever ilk contains even a modicum of
probative value from which “customary State practice” may be gleaned,
such evidence may serve as a normative foundation for a principle of
customary international law. We have selected to limit our analysis of the
status of public purpose in customary international law to considering the
role of public purpose (in all of its iterations) by (i) analyzing the status
and meaning ascribed to public purpose international instruments; (ii) the
status of the doctrine in BITs;379 and (iii) domestic legislation concerning
the protection of foreign investments/investors.380 These three categories
have been selected because of the probative value that they have in
tending381 to demonstrate State practice with respect to the public purpose
doctrine. The objective entails understanding the scope, content, and
standard of the doctrine in customary international law. In doing so, it is
legitimate to ask whether the public purpose doctrine articulated by
customary international law differs from its conventional international law
counterpart? How does customary international law’s unique features
affect the actual status of the public purpose doctrine, its content, and
application? Does customary international law enrich the public purpose
doctrine and help it bring into being the harmonizing investor/investment
protection and regulatory sovereignty? Is it clear that the scope, content,
and application of a public purpose doctrine as articulated in customary
international law contribute to a fair interaction between capital-exporting
and capital-importing countries in an environment of economic
globalization? Finally, is customary international law a vehicle for a
public purpose doctrine that focuses more on shared responsibility than a
winner-take-all dispute resolution approach?
378
McGinnis & Somin, supra note 379, at 1222 (“The first shortcoming of this argument
lies again in the democracy deficit. Even if customs generated among States prove to be
efficient, it only follows that they are efficient for State leaders, not for their subjects.
Authoritarian and totalitarian States do not represent the preferences of their people.
Thus, interactions among these States do not necessarily lead to rules that are efficient
from the standpoint of the population as a whole.”).
379
See infra Chapter 4.
380
See infra Chapter 6.
381
We do not find that the applicable presumption should be one of prima facie
conclusiveness as to enjoying customary international law status simply by meeting any
of these criteria.
EAST\64724221. 3140
C.
Discovering and Reviving the Public Purpose Doctrine in
International Instruments
International instruments impose limitations on the exercise of
sovereignty. Treaties are structured negotiated sovereignty concessions
exchanged for perceived greater benefits arising from bilateral or
multilateral agreements.382 This traditional view of the relationship
between international instruments and the plenary exercise of sovereignty
is universally accepted. It is necessary, however, to observe that it is
premised on a very orthodox Westphalian understanding of sovereignty
pursuant to which a sovereign may exercise its unbridled discretion,
limited only by the physical boundaries of national territory, while
sovereignty itself is understood as deeply related to territorial normative
authority.383 While it is manifestly clear and somewhat obvious that
international rules give rise to restrictions on the exercise of domestic
regulatory autonomy or sovereignty, these very instruments (mostly
treaties) also serve to vest States with “specific” or “particular” regulatory
fiat that transforms a regulatory taking into an illegal fine imposed on a
State merely for executing its obligations in furtherance of the greater
public interest. It is in this context that the public purpose doctrine plays a
dispositive role.
The extent to which existing international instruments
appropriately restrict the domestic regulatory space of States while also
allowing sovereigns to apply domestic regulations in ostensible derogation
of international instruments purportedly in the name of the common good
is governed by the public purpose doctrine. As shall be demonstrated, the
rubric of exceptions and reservations to international instruments
represents techniques that have been applied in efforts to strike this
balance not only between a State’s right to exercise its regulatory authority
in the national/domestic realm and the expectations of foreign
investors/investment, but also between national industries and the scope of
domestic regulatory authority, including exceptions relating to the right to
provide subsidies and to extend exceptions to taxation. While the GATT,
the NAFTA, and the Agreement on Technical Barriers to Trade (the TBT
Agreement) certainly serve as valuable models illustrating resourceful
approaches to these problems, as already suggested,384 they are far from
382
While “the conclusion of any Treaty by which a State undertakes to perform or refrain
from performing a particular act” is not a complete abandonment of sovereignty, “any
convention creating an obligation of this kind places a restriction upon the exercise of the
sovereign rights of the State, in the sense that it requires them to be exercised in a certain
way.” S.S. Wimbledon (U.K. v. Japan), ¶ 35, 1923 P.C.I.J. (ser. A) No. 1 (Aug. 17).
383
See supra note 51 & accompanying text.
384
See supra Chapter 1.
EAST\64724221. 3141
conclusive with respect to the development of a public purpose standard
that contributes to uniformity because of its subjective substantive content.
The appearance of the public purpose doctrine in customary
international law is accorded many names and asked to serve as a guiding
principle in numerous contexts and disciplines, ranging from human
rights,385 permanent sovereignty over natural resources,386 economic
development,387 harmonizing investment and commercial law,388 to
defining the domestic confines of a State’s regulatory authority.389 The
public purpose doctrine’s formal nomenclature and contextual references
argue in favor of the development of a substantive principle governed by
objective content or an altogether reevaluation of the doctrine that
meaningfully diminishes its role as a controlling principle.The latter
option is replete with challenges and troubling consequences.
385
E.g., Protocol to the Convention for the Protection of Human Rights and Fundamental
Freedoms art. 1, Mar. 20, 1952, Europ. T. S. No. 009 (“Every natural or legal person is
entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his
possessions except in the public interest and subject to the conditions provided for by law
and by the general principles of international law.”) (emphasis supplied) [hereinafter
Euro. Conv. Protocol 1]. The entire Convention, as amended by Protocol 14, is available
at
http://www.echr.coe.int/NR/rdonlyres/D5CC24A7-DC13-4318-B457
5C9014916D7A/0/Convention_ENG.pdf (last visited March 20, 2012).
386
E.g., Permanent Sovereignty Over Natural Resources, G.A. Res. 1803, U.N. GAOR,
17th Sess., Supp. No. 17, at 15, U.N. Doc. A/5217 (1962). (“Nationalization,
expropriation or requisitioning shall be based on grounds or reasons of public utility,
security or the national interest which are recognized as overriding purely individual or
private interests, both domestic and foreign.”) (emphasis supplied) [hereinafter G.A. Res.
1803].
387
E.g., ASEAN Comprehensive Investment Agreement, art. 14, Feb. 26, 2009, available
at
http://aseansummit.mfa.go.th/14/pdf/Outcome_Document/ASEAN%20Compre%20Inves
t%20Agreement.pdf [hereinafter ACIA].
388
E.g., GATT, supra note 19, art. XX ¶ (a) (“Subject to the requirement that such
measures are not applied in a manner which would constitute a means of arbitrary or
unjustifiable discrimination between countries where the same conditions prevail, or a
disguised restriction on international trade, nothing in this Agreement shall be construed
to prevent the adoption or enforcement by any contracting party of measures...necessary
to protect public morals.”).
389
E.g., Kelo v. City of New London, 545 U.S. 469, 480 (2005) (“The disposition of this
case therefore turns on the question whether the City’s development plan serves a ‘public
purpose.’ Without exception, our cases have defined that concept broadly, reflecting our
longstanding policy of deference to legislative judgments in this field.”).
EAST\64724221. 3142
D.
The Many Names of the Public Purpose Doctrine: Exploring
Uniformity and Multifarious Nomenclature.
The initial challenge to discerning the actual existence of the
public purpose doctrine within customary international law, let alone its
content and scope, concerns fundamental nomenclature. “Public purpose,”
defined as a doctrine, does not find any space in international instruments.
Despite this absence of any definition, the customary international law
expression of the public purpose doctrine appears under many names.
Some of the most notable and recurring names for the doctrine as found in
international instruments are: (i) public purpose,390 (ii) public interest,391
(iii) public order,392 (iv) public utility,393 (v) public morals,394 (vi)
390
The literal “public purpose” term mostly appears in the context of an exception to a
direct or indirect expropriation or nationalization, or of actions tantamount to an
expropriation. See, e.g. U.N. GAOR, 62nd Sess., 121st plen. mtg. at 4, U.N. Doc.
A/62/PV.121 (Sept. 11, 2008); ACIA, supra note 389, art. 14 and annex 2; Future
Government of Palestine, G.A. Res. 181 (II), U.N. Doc. A/RES/181(II) (Nov. 29, 1947).
391
The “public interest” nomenclature is the most recurring iteration of the public
purpose
doctrine
in
customary international law. See, e.g., Euro. Conv. Protocol 1, supra note 387, art. 1;
Org. for Econ. Cooperation & Dev. [OECD], The Multilateral Agreement on Investment:
Draft Consolidated Text ¶¶ 56, 81, 143, DAFFE/MAI(98)7/REV1 (Apr. 22, 1998),
http://www1.oecd.org/daf/mai/pdf/ng/ng987r1e.pdf. [hereinafter Draft MAI]; GATT,
supra note 19, art. X; General Agreement on Trade in Services arts. 3, 14, Apr. 15, 1994,
Marrakesh Agreement Establishing the World Trade Organization, Annex 1B, 33 I.L.M.
1167 (1994) [hereinafter GATS]; Agreement on Trade-Related Aspects of Intellectual
Property Rights arts. 8, 63(d), Apr. 15, 1994, Marrakesh Agreement Establishing the
World Trade Organization, Annex 1C, 33 I.L.M. 1197 (1994) [hereinafter TRIPs];
Agreement on Government Procurement arts. 18-20, Apr. 15, 1994, Marrakesh
Agreement Establishing the World Trade Organization, Annex 4, available at
http://www.wto.org/english/docs_e/legal_e/gpr-94_e.pdf (last visited Apr. 1, 2013)
[hereinafter AGP]; World Trade Organization, Ministerial Declaration of 14 November
2001 ¶ 22, WT/MIN(01)/DEC/1, 41 I.L.M. 746 (2002) [hereinafter Doha Declaration];
United Nations Conference on Trade & Development, Nov. 6-8, 2002, Geneva, Switz.,
The Development Dimension of Foreign Direct Investment: Policies to Enhance the Role
of FDI, in the National and International Context — Policy Issues to Consider (Note by
UNCTAD Secretariat) 1, 3, U.N. Doc. TD/B/COM.2/EM.12/2 (Sept. 23, 2002)
[hereinafter “UNCTAD FDI Policy Note”].
392
See, e.g., Protocol No. 4 to the Convention for the Protection of Human Rights and
Fundamental Freedoms, securing certain rights and freedoms other than those already
included in the Convention and in the first Protocol thereto art. 2(3), Sept. 16, 1963,
Europ. T.S. No. 046 [hereinafter Euro. Conv. Protocol 4]; Protocol No. 7 to the
Convention for the Protection of Human Rights and Fundamental Freedoms art. 1(2),
Nov. 22, 1984, Europ. T.S. No. 117 [hereinafter Euro. Conv. Protocol 7]; Treaty
Establishing the European Economic Community arts. 36, 48, 56, 135, 25 March 1957,
298 U.N.T.S. 3. [hereinafter EEC]; ACIA, supra note 389, art. 17; American Convention,
supra note 13; AGP, supra note 393, art. 23; GATS, supra note 393, art. 27; Report of
the Economic & Social Council, Alternative Approaches and Ways and Means Within the
United Nations System for Improving the Effective Enjoyment of Human Rights and
Fundamental Freedoms: Respect for the right of everyone to own property alone as well
EAST\64724221. 3143
common interest,395 (vii) general or public welfare,396 (viii) public need,397
(ix) security or police powers,398 and (x) permanent sovereignty over
natural resources.399 This list is not exhaustive of terms that are used in
lieu or otherwise equivalent to the public purpose doctrine.400 For
purposes, however, of identifying and determining the scope, content, and
as in association with others and its contribution to the economic and social development
of Member States, Oct. 27, 1988, U.N. Doc. A/43/739; GAOR, 43rd Sess. (1988)
[hereinafter 43rd Sess. Report].
393
See, e.g., American Convention, supra note 13, art. 21; G.A. Res. 1803, supra note
388.
394
See, e.g., GATT, supra note 19, art. XX; TRIPs, supra note 393, art. XVII.
395
See, e.g., Charter of Economic Rights & Duties of States preamble, G.A. Res. 3281,
U.N. GAOR, 29th Sess., U.N. Doc. A/Res/29/3281 (1974) [hereinafter Charter of
Economic Rights & Duties of States].
396
See, e.g., ACIA, supra note 389, annex II; 43rd Sess. Report, supra note 394.
397
See, e.g., African (Banjul) Charter on Human and People’s Rights art. 14, June 27,
1981, 21 I.L.M. 58 (1982), (and entered into force Oct. 21, 1986) [hereinafter African
Charter]. Additionally, although domestic, the French Declaration of the Rights of Man
and Citizen, decreed in 1789 and accepted by the King in 1789, merits citation as
especially influential in this realm of public international law.
398
See, e.g., Euro. Conv. Protocol 7, supra note 394, art. 1(2); ACIA, supra note 389, art.
17 n.12, GATT, supra note 19, art. XXI; GATS, supra note 393, art. XIV; TRIPs, supra
note 393, art. 73; UNCTAD FDI Policy Note, supra note 393, at ¶ 45.
399
The doctrine of permanent sovereignty over natural resources constitutes the most
eloquent example of the public purpose doctrine amplifying the State’s regulatory space
at the expense of foreign investment. As will be explained in a section allocated to the
permanent sovereignty over natural resources expression of the public purpose
doctrine, this doctrinal expression of public purpose bolsters the need to reform the
public purpose doctrine so that it may shed its historical legacy-driven elements in
favor of a more balanced and inclusive framework that embraces the geopolitical
consequences of economic globalization. It shall be asserted that the doctrine of
permanent sovereignty over natural resources is but an application of the public
purpose doctrine in institutional form and found to a specific subject matter category
that was historically driven because of the process of decolonization. See infra Chapter
5.
For international instruments comprising customary international law evincing the
permanent sovereignty over natural resources iteration of the public purpose doctrine,
see, e.g., G.A. Res. 1803, supra note 388; Permanent Sovereignty Over Natural
Resources, G.A. Res. 3171, U.N. GAOR, 28th Sess., Supp. No. 30, at 52, U.N. Doc.
A/9030 (1973) [hereinafter G.A. Res. 3171]; Charter of Economic Rights & Duties of
States preamble, supra note 397.
400
“Community interest,” “social interest or welfare,” and “common good,” among
others, also tend to appear.
EAST\64724221. 3144
standard of the public purpose doctrine as enunciated in customary
international law, the nomenclature represented by the ten terms identified
is sufficient. Moreover, the use of two or more of these terms in a single
document is common.401 Even where, however, multiple terms for the
public purpose doctrine are used within a single international instrument,
functional consistency is preserved, notwithstanding that greater rigor
arising from uniformity is desired and proves to be ultimately necessary,
as shall be more explicitly discussed.
The want of uniformity of nomenclature is a shortcoming endemic
to the unique structural features of customary international law. It is also
indicative of the taking for granted of the public purpose doctrine by
ascribing to it the doctrinal status of a self-evident principle that rightly is
left in the hands of the invoking State for scope and content. The lack of
uniformity is also witness to the doctrine’s fragmented content. Thus the
doctrine, in its different iterations, appears without being defined. It is
applied without being analyzed. The appearance of a doctrine with
different nomenclature within a single international instrument casts
material uncertainty as to the doctrine’s content and tends to bind the
doctrine’s scope to the specific subject matter contextualizing the term.
This phenomenon regrettably leads to a fragmentation of the doctrine that
is in turn accompanied by inevitable inconsistent constructions in its
application.
A fragmented use of the doctrine within a single international
instrument arising from varying nomenclature leads to normative
problems attaching to the doctrine as pronounced in customary
international law. In the context of these structural challenges, it is
legitimate to inquire whether the iterations under different nomenclature
of the public purpose doctrine are indeed references to a public purpose
doctrine or different conceptual exceptions having a “public” common
denominator but certainly not constituting a single public purpose
doctrinal rubric? Are the various “public based” exceptions found in
international instruments independent grounds for expanding the
regulatory sphere of States, or part of a single overarching principle? The
answers to these queries appear to be in the affirmative.
A descriptive, content/normative and practical analysis suggests
that the somewhat distinct and fragmented terms rooted in conceptual and
etymological formulations of what is public is suggestive of a single
precept viewed through the shattered prism of customary international
401
See, e.g., Euro. Conv. Protocol 4, supra note 394, art. 2(3) (referencing “public
order”); Euro. Conv. Protocol 7, supra note 394, art. 1(2) (referencing “public order” and
“national security”) American Convention, supra note 13, art. 21 (referencing “public
utility”) and art. 22 (“public order”); ACIA, supra note 389, art. 14 (referencing “public
purpose”).
EAST\64724221. 3145
law’s fractured and decentralized structure. The critical reading of texts
helps.
E.
Evidence of Scope and Substance of the Public Purpose
Doctrine in Select International Instruments
1.
Identification, Scope, and Content of the Public Purpose
Doctrine Within International Instruments Concerning
Transnational Trade and Investment: A Doctrine that
Expands Sovereignty Within Instruments that Limit
State Authority.
The various iterations of the public purpose doctrine within
customary international law share a very important common denominator.
This common element bolsters support for the proposition that the various
permutations of the public purpose doctrine all concern a simple principle,
as here discussed. Despite forming part of instruments that by their very
nature place constraints on signatory States as to regulatory sovereignty,
the multiple manifestations of the public purpose doctrine have a
diametrically contrary effect. Embedded in instruments that limit a State’s
domestic regulatory space, the public purpose doctrine in all of its
manifestations has both the theoretical and practical consequence of
indiscriminately broadening the regulatory authority of States. This salient
feature argues compellingly in favor of the proposition that what has been
identified as multiple iterations of a single doctrine are in fact so.
Descriptive and contextual analyses only serve to further this construction.
2.
Public Purpose in UNCTAD and WTO Instruments
The tension between capital-exporting and capital-importing
countries has contributed to the content and scope of the public purpose
doctrine. Contextualizing this tension between developing and developed
countries within the framework of efforts undertaken to fashion
multilateral agreement on the international law of foreign investment,
Sornarajah observes that
Several attempts have been made at bringing about a
comprehensive code on foreign investment [citing to the
Havana Charter of 1948 As The First Attempt At Crafting
Uniform Foreign Investment Provisions That Also Entailed
An International Trade Organization], but they have
resulted in failure simply because of the ideological rifts
and clashes of interests that attend this branch of
international law. Most drafts have been made with the
objective of providing as much protection as is possible for
EAST\64724221. 3146
an investment. These have been rejected by capitalimporting States.402
From a historical perspective, capital-importing countries have opposed
prospective trade and investment agreements that seek to protect foreign
investment, typically outbound from industrialized capital-exporting
States, without at all subordinating the protection accorded to such
investment/investors to concerns pertaining to human and animal health
and life, national necessities, environmental concerns, and the financial
institutional soundness of Host States.403 While capital-exporting countries
steadfastly have maintained that the scope and substance of investment
protection rules must be segregated from the traditionally domestic
regulatory sphere of Host States, capital-importing countries view this
aspiration as an unworkable proposition unduly detached from pragmatic
realities.404
The processes of decolonization and economic globalization,
together with the inclusion of human rights and environmental activists
into the discussion, have contributed to sharpening the debate concerning
the extent to which investment treaties must be exclusively confined to
investment protection. Despite the seductive appeal of this ongoing
colloquy, this writing does not seek to resolve the contention or articulate
arguments in support of a proponent to the detriment of another. Instead, it
focuses on the extent to which the public purpose doctrine, either by
402
M. SORNARAJAH, THE INTERNATIONAL LAW
University Press, 3rd ed. 2010).
ON
FOREIGN INVESTMENT (Cambridge
403
The once pristine dichotomy between capital-exporting and capital-importing States
itself is undergoing an historic transformation. A notable trend has emerged and
continues to develop. Consonant with this new phenomenon, a third category of States
has arisen that are neither strictly capital-exporting or capital-importing. Developed but
not optimally industrialized nations such as Colombia, Brazil, India, Chile, South Korea,
and to some extent even China, herald a new category of sovereignties. Economic
development compels a reassessment of the relationship between these and other
comparable States to international commercial law generally and particularly
international investment law seeking to regulate contentions between foreign investment
protection and a Host State’s exercise of its regulatory authority. With the exception of
Brazil, these States’ evolving views on a relationship between the scope of domestic
regulatory authority and protection to be accorded to foreign investment is to some
extent contained in the more reasoned bilateral investment treaties that they most
recently have executed as signatories.
404
“Traditionally, the vested interests of States concluding BITs fell into two categories:
those on the side of capital-exporting States, with an interest in adopting strong
protections for foreign investors; and those on the side of capital-importing States, with
an interest not only in attracting foreign investment but also in attempting to preserve
host country sovereignty and authority to promote the public interest.” Karen Halverson
Cross, Converging Trends in Investment Treaty Practice, 38 N.C. J. INT’L L. & COM.
REG. 151, 154 (2012).
EAST\64724221. 3147
happenstance or design, has been called upon to mitigate this friction, if
not to altogether eviscerate it. Therefore, international instruments
concerning economic development, international investment law, and
international trade law have served as battlegrounds where industrialized
States and underdeveloped States have debated the appropriate balance
between investment protection and compliance with a State’s obligation to
exercise its regulatory authority. The malleable and evasive nature of the
public purpose doctrine, which for the most part has been held to a
subjective standard that virtually defies evidentiary challenge, has been
sequestered by proponents of all sides. The net effect has favored those
States that have benefited from the expansion of the domestic regulatory
space. This asymmetry poses numerous risks to any investor protection.
3.
Public Purpose and the United Nations Conference on
Trade and Development
The United Nations Conference on Trade and Development
(UNCTAD) on September 23, 2002, published the Commission on
Investment, Technology and Related Financial Issues Note arising from its
Sixth Session held earlier that year (Jan. 21-25). The topic of that session
and, therefore, of the Note, was framed as “An ‘Expert Meeting’ on the
Development Dimension of FDI: Policies to Enhance the Role of FDI in
Support of the Competitiveness of the Enterprise Sector and the Economic
Performance of Host Countries, Taking into Account the
Trade/Investment Interface, in the National and International Context.”405
The Commission sought to explore how best international investment
agreements may help capital-importing countries (underdeveloped States
and economies in transition) maximize their ability to attract FDI
investments, as well as attain a thorough understanding of the limitations
on domestic regulatory authority that international investment agreements
impose on Host States. It is worth observing that the Committee
understood its objective as helping underdeveloped countries.
Consequently, it is to be expected that their efforts sought to preserve, if
not altogether enhance, the regulatory space of underdeveloped countries
despite constraints that international investment agreements likely impose.
In this connection, the terms of reference of the “Expert Meeting” is
helpful:
How can host country policies encourage synergy between FDI and
domestic enterprises, to support the competitiveness of the latter, in the
national and international context?
What measures can home countries take to contribute to such outcome?
405
UNCTAD FDI Policy Note, supra note 393, at 3.
EAST\64724221. 3148
How can the interests of home and host countries be balanced, taking into
account the development policies and objectives of host Governments as
well their right to regulate in the public interest?
How can safeguards be introduced to ensure that domestic enterprises are
not adversely affected?406
Moreover, as part of an effort directed at assisting capitalimporting countries and transition economies, the Commission also
emphasized the difficulties that underdeveloped countries face in
transitioning from “more interventionist policy approaches (at the point of
FDI entry) to the regulation of markets [which] is difficult because of a
lack of financial and human resources.”407
The context and perspective of the Commission as represented in
the UNCTAD Secretariat’s Note. is important to ascertain if indeed the
public purpose doctrine is to be descriptively and contextually analyzed.
The Committee’s finding is indispensable to this task:
In conclusion, while international rules obviously imply a
measure of restriction on domestic regulatory autonomy,
several techniques have been used to strike the right
balance. The GATT, the Agreement on Technical Barriers
to Trade (the TBT Agreement) and the GATS all use
different approaches and may provide useful reference
models for any future rule-making in the area of
investment. With regard to both regional and bilateral
406
Id. at 4 ¶ 8.
407
Id. at 9 ¶ 21. Because of the challenges that this issue presents, the Committee
encouraged consideration
of the following questions:
(a) What host country government policies are particularly important
for enhancing the ability of developing countries and economies in
transition to attract and benefit from FDI in line with their
development objectives?
(b) How do international agreements at the bilateral, regional and
multilateral levels effect the ability of countries to use these
policies?
(c) To what extent have various performance requirements help
countries meet their development objectives?
(d) What “yellow light” [a category of host country operational
measures—HCOMs—explicitly prohibited but not by multilateral
agreements] have been particularly useful in this regard?
(e) How would developing countries benefit from making the use of
such requirements more (or less) restrictive?
Id. at 6 ¶ 22.
EAST\64724221. 3149
(international investment agreements), it is necessary to
examine to what extent the right to regulate goes beyond
‘regulatory takings’ and similar issues of investment
protection to encompass the way other areas covered in the
[international investment agreements] can be reconciled
with the necessary preservation of policy space for
development.408
Preservation of the domestic regulatory space of Host States is
treated as a predicate to maximizing the effects that FDI can have on
underdeveloped States. It is within the context of this policy position that
the Secretariat’s Note references the public purpose doctrine. It is of
considerable importance to emphasize that the Note by the UNCTAD
Secretariat does not purport to constitute a legal analysis, opinion or
position paper. Understandably, it does not engage in a sustained
dissertation on the content, scope, or application of the public purpose
doctrine. Instead, it merely references the term within the context of a
policy perspective endeavoring to fashion techniques that will enhance the
domestic regulatory authority of underdeveloped States with respect to
foreign investments, notwithstanding the limitations imposed by bilateral
investment treaties that are negotiated only by two nations, at an ad hoc
basis, and that cannot be said to reflect a coherent approach arising from a
broader community of nations.
The Secretariat’s Note references the public purpose doctrine on
six occasions.409 All six references suggest that (i) “the right to regulate” is
a central concern and (ii) public purpose is viewed as an exception that
does not merit justification or explanation.
The Secretariat’s Note’s first mention of the public purpose
doctrine references the Doha Ministerial Declaration.410 The
pronouncement is indicative of reliance on a doctrine to serve as an
exception without a need to proffer any explanation. Again, the doctrine is
accorded “self-evident status.
The Doha Ministerial Declaration, in the context of the
relationship between trade and investment, Stated in
paragraph 22: ‘Any framework should reflect in a balanced
manner the interests of home and host countries, and take
due account of the development policies and objectives of
408
Id. at 18 ¶ 48.
409
See id. at ¶¶ 31, 35, 39, 42, 45.
410
See infra Chapter 2.G.
EAST\64724221. 3150
the host Governments, as well as their right to regulate in
the public interest.’411
The “right to regulate in the public interest” identifies “public
interest” as the normative foundation for domestic regulation that may
adversely affect “the interests of home [countries].” Stripped of any
qualification, the term “public interest” is deemed to be sufficiently
transparent and self-explanatory as to command freestanding status. The
very grammatical construction also distinguishes the “right to regulate in
the public interest” from (i) “development policies” and (ii) “objectives of
host Governments.” It is the “public interest” component that purportedly
both limits the “right to regulate” and also serves as that right’s normative
foundation. The paradox that the legacy public purpose doctrine presents
when serving as a constraint on regulatory sovereignty is problematic.
Assuming that FDI triggers the issuance of new regulation in
response both to pre-entry and post-entry FDI status within the context of
a particular domestic industry sector, logic commands that as a general
proposition such regulation would be narrow—that States would be
doctrinally constrained in promulgating regulatory rubrics that may be
adverse to FDI—particularly post-entry where due process concerns are
likely to arise. A narrow exercise of the right to regulate that touches or
concerns FDI also comports with universally valued precepts of
uniformity, transparency and predictive value, which are central both to
international trade and investment law. Yet, instead of serving as a
temporary constraint on a sovereign’s right to regulate post-entry FDI,
iterations of the public purpose doctrine such as “public interest,” as
referenced in the Secretariat’s Note, furthers a diametrically opposed
interest that is expansive and not restrictive.
“Public interest,” as referenced in the Secretariat’s Note, through
the prism of a plain and merely descriptive analysis refers to an
inordinately broad category of “all things public.” Contextually within the
writing at issue, “public interest” necessarily refers to an exception
providing for what would be construed as legitimate encroachment on preand post-entry FDI arising from the “public” component to “public
interest.” The most comprehensive exegesis, however, commands
reference to the public purpose doctrine as historically empowering States
to encroach upon FDI at any juncture by dint of its regulatory authority so
long as such regulation (i) concerned a public purpose, and (ii) the
sovereign intended for the regulation to issue in furtherance of a public
purpose. Under any analysis, premising the “right to regulate” on meeting
a “public interest” standard so that the prejudicial effects of the regulation
on FDI may be deemed to be legitimate and not actionable against a State,
is tantamount to providing Host States with an unbridled license to
411
UNCTAD FDI Policy Note, supra note 393, at 13 ¶ 31 (emphasis supplied).
EAST\64724221. 3151
encroach upon FDI. Regrettably, by virtue of mechanical boiler-plate
repetitions over time, “the right to regulate for a public purpose”
superficially has been viewed as a narrow exercise of domestic regulatory
fiat.
Because of the perception that any basis for encroachment on FDI
would be “limited” by this “rule of law,” the principles of transparency,
uniformity, and predictive value were assumed in a sphere where nothing
could be farther from the actual facts.412 The friction between capitalexporting and capital-importing countries is only worsened by this
application of the public purpose doctrine. The inevitable result shall
continue to yield greater uncertainty and more transnational disputes. The
lack of academic rigor, legacy weaknesses, and conflicting arbitral
“decisional-law” touching upon the public purpose doctrine all conspire to
lessen the likelihood of maximizing the potential benefits of FDI for all
concerned: developed, developing, and transition economies.
The second reference to the public purpose doctrine in the
Secretariat’s Note is helpful to the understanding of the role that the
doctrine plays in the effort to harmonize the tensions between home and
Host States. It also maximizes the potential gains of a robust FDI
international culture. The text suggests that interpretive techniques, among
others, may serve to secure rights for signatories to regulate the domestic
economy where such regulation may adversely affect FDI. This effort to
carve out regulatory rights in the context of international trade and
investment law challenges is placed squarely on the shoulders of the
public purpose doctrine. Significantly, despite reference to an emphasis on
interpretive techniques, there is no suggestion that the foundational
exception, i.e., public purpose, requires any such expansive treatment.
Quite the contrary, the mere reference to the concept, implies that
doctrinal clarity already pervades the often cited precept and is universally
known:
412
As will be demonstrated infra Chapter 4, the debilities endemic to the legacy public
purpose doctrine are multiplied and made worse where the public purpose doctrine
appears as an exception in Bilateral Investment Treaties negotiated only between two
nations enjoying disparate marketing leverage, where the negotiations are had pursuant
to very idiosyncratic features unique to the relationship between two States at issue.
The resulting treaty embodies international principles and doctrines, such as the public
purpose doctrine, but within the context of uniquely conceived, defined, and applied
principles. The universe of bilateral investment treaties (“BITs”) negotiated and
conceived in this manner now represents a universe of over 3,000 BITs that were
independently negotiated, lack any centralized structure or organizing principle, and
are both formally and substantively unrelated to each other. This configuration
diminishes predictability, transparency and uniformity. Perhaps the proliferation and
negative consequences of this phenomenon may be averted were States to consent to
executing multilateral agreements in the realm of international investment law. This
lack of consensus, however, likely shall continue to spawn BITs and thus perpetuate
this paradox.
EAST\64724221. 3152
There are various ways to address the issue of the right to
regulate. Some of these, with regard to both trade and
investment agreements, are reviewed below. In all cases the
ability of signatories to regulate the domestic economy is a
governing concern. Insofar as this concept is reStated in an
agreement, for instance, in its preambular language – it also
serves an interpretive function vis-à-vis the provisions of
the agreement. Furthermore, whenever countries enter into
standard-of-treatment obligations, such as fair and
equitable treatment, prohibition of arbitrary and
discriminatory measures or most-favoured-nation treatment
(MFN) and national treatment, various kinds of exceptions,
reservations, derogations, waivers or transnational
arrangements ensure that signatories retain the prerogative
to apply non-conforming domestic regulations in certain
areas. These can be general (e.g., for public order or
national security), subject-specific (e.g., the so-called
‘cultural exception’) or country-specific (e.g., as in the case
of GATS schedules of commitments, with regard to
commercial presence).413
Also noteworthy is the dichotomy between the characterization of
“public order” as a general exception, and the subjective standard
governing the exception.
The UNCTAD Note reStates the settled but untested principle of
international law that Host States may discriminate against imports in
favor of domestic products so long as that discrimination rests on a
legitimate purpose. According to UNCTAD, the GATT Article XX public
purpose exceptions constitute legitimate grounds justifying foreign
product discrimination by Host States.414 Cloaked in its “public morals”
413
UNCTAD FDI Policy Note, supra note 393, at 13-14 ¶ 33.
414
The Note on this issue in part provides:
In the area of trade, the issue has been debated and litigated at length in
the GATT/WTO system, where the dispute settlement process has been
frequently used to police domestic regulatory measures that have an
impact on trade. The main instrument for policing regulatory activities
in the WTO comes from the 1947 GATT and is found in Article III’s
non-discrimination (national treatment) obligation as complemented by
the exceptions contained in Article XX. The general national treatment
rule contained in Article III provides that internal taxes and
regulations must not treat imports less favourably than domestic
products. If a domestic regulatory measure is found to discriminate
against imports, the regulating government may attempt to justify the
discrimination by proving that it is necessary to achieve some
legitimate purpose. Article XX of GATT defines these exceptions to
include those necessary to protect public morals; to protect human,
EAST\64724221. 3153
iteration, host country discrimination in favor of domestic commercial
interests also extends to the regulation of services for presumably
legitimate public claims. The Secretariat’s Note suggests that exercise of
its regulatory authority constitutes “the sovereign right of a country to
regulate services for legitimate purposes,” even though it also asserts that
the GATT’s “Article VI seeks to prevent the use of administrative
decisions to disguise protectionist measures.”415
The UNCTAD Note’s concern for “protecting” the domestic
regulatory space of Host States is explicit enough, but nowhere clearer
than in its treatment of “the right to regulate” in the context of investment
protection agreements. The committee sets forth an accurate narrative
detailing the connection between issues relating to the right to regulate,
and regional and bilateral investment treaty language covering measures
“tantamount” or “equivalent” to expropriation, as well as indirect and
regulatory takings. The effects of “creeping expropriation” pursuant to
which two or more legal regulatory acts carried out over a period of time
have the effect of diminishing or substantially destroying the value of an
investment is deemed an actionable expropriation providing the Host State
with the obligation to tender compensation for the consequences of its
exercise of “legitimate” and arguably “obligatory” regulatory authority.
The Secretariat’s Note, however, somewhat implicitly suggests that the
public purpose doctrine represents too narrow an exception for Host
States, as this suggestion may appear to be when first considered:
[BITs] [g]enerally impose conditions on expropriations if it
is to be considered lawful, by adopting some variation of
the traditional rule of international law that a State may
not expropriate the property of an alien except for public
purpose, in a nondiscriminatory manner, in accordance
with due process of law and upon payment of
compensation. Concerns have been expressed with regard
to the impact that an expansive use of expropriation claims
may have on sovereign governments’ right to regulate.416
animal and plant life or health; and relating to the conservation of
exhaustible resources. It should be noted that this list of policies that
can justify measures otherwise considered in violation of national
treatment is ‘closed’ and thus provides limited scope for claiming an
exception in many areas where countries may want to pursue
regulatory action.
Id. at 14 ¶ 35 (emphasis supplied).
415
Id. at 15 ¶ 39.
416
Id. at 16 ¶ 42 (emphasis supplied).
EAST\64724221. 3154
While from a strict and literal perspective issues have been raised
with respect to the expansive application of alleged breaches of direct or
indirect nationalization or expropriations or actions tantamount to an
expropriation,417 the prevailing concern has focused more on attempting to
address the need for transparent and predictive standards governing the
law of expropriation in all of its incarnations to allay the fears of capitalexporting countries and thus maximize the benefits of FDI.418 The view
that somehow the efficiencies of international investment law were being
compromised because of concerns pertaining to the expansive use of
expropriation claims has not been chronicled as posing a material
challenge to the law of international investment or to treaty-based arbitral
proceedings premised on public international law.
The expansive scope of the public purpose doctrine under
customary international law as memorialized in the UNCTAD Note also
applies to “favourable tax treatment to investment by national companies
without according the same treatment to investment by foreign
companies,” such as in Protocol No. 2 of the Indonesia-Switzerland
BIT.419 Therefore, the UNCTAD Note broadens and enriches the public
purpose doctrine by according normative status to a State’s economic
development plight. Protocol No. 2 of the Indonesia-Switzerland BIT
allowing for derogation from national-treatment, in pertinent part
provides:
417
See, e.g., Matthew C. Porterfield, State Practice and the (Purported) Obligation
Under Customary International Law to Provide Compensation for Regulatory
Expropriations, 37 N.C. J. INT’L L. & COM. REG. 159, 165 (2011) (“The concept of
indirect expropriation under investment agreements applies to a broad range of
government actions, including not only regulatory measures but taxation as well.”);
Alberto R. Salazar V., Ph.D., NAFTA Chapter 11, Regulatory Expropriation, and
Domestic Counter-Advertising Law, 27 ARIZ. J. INT’L & COMP. L. 31, 39 (2010) (citing
Metalclad as an example of the how the “concept of regulatory expropriation,
characterized by a focus on the use of property and the expectations of foreign investors,
broadens the protection granted to the latter.”).
418
See generally Martinez-Fraga, supra note 51; see also Julie A. Maupin, Transparency
in International Investment Law: The Good, The Bad, and The Murky, in TRANSPARENCY
IN INTERNATIONAL LAW 14, n.81 (Andrea Bianchi & Anne Peters eds., forthcoming
2013); Daniel Barstow Magraw Jr. & Niranjali Manel Amerasinghe, Transparency and
Public Participation in Investor-State Arbitration, 15 ILSA J. INT’L & COMP. L. 337
(2009); Catherine A. Rogers, Transparency in International Commercial Arbitration, 54
U. KAN. L. REV. 1301 (2006); Statement by the OECD Investment Committee,
Transparency and Third Party Participation in Investor-State Dispute Settlement
Procedures,
June
2005,
available
at
http://www.oecd.org/investment/investmentpolicy/34786913.pdf;
Fulvio
Fracassi,
Confidentiality and NAFTA Chapter 11 Arbitrations, 2 CHI. J. INT’L L. 213 (2001).
419
UNCTAD FDI Policy Note, supra note 393, at 17 ¶ 45.
EAST\64724221. 3155
En signant la Convention concernant l’encouragement et la
protection réciproque des investissements conclue entre le
Gouvernement de la Confédération Suisse et le
Gouvernement de la République Indonésienne, les
plénipotentiaires soussignés sont en outre convenus des
dispositions suivantes, qui font partie intégrante de ladite
Convention:
(2)
Par dérogation au traitement national prévu
à l’article 4, paragraphe 3, de la présente
Convention, le Gouvernement de la
République Indonésienne, vu le niveau de
développement actuel de l’économie
nationale indonésienne, réserve comme il
suit sa position à l’égard du traitement
national des investissements suisses sur le
territoire de la République Indonésienne:420
Both exceptions, (i) favorable tax treatment to investment by national
companies to the detriment of investment by foreign companies and (ii)
the abrogation of the national-treatment standard on the ground of a
State’s economic development, materially contribute to amplifying the
public purpose doctrine’s scope and content, consonant with the
Secretariat’s Note where the public purpose doctrine is referenced. The
abrogation of national-treatment standard in favor of a State’s economic
development and for tax purposes form part of customary international
law as part of the public purpose doctrine, notwithstanding the sweeping
reach and subjective standard accorded to the doctrine.
The UNCTAD Secretariat’s Note explicitly references the public
purpose doctrine. Any descriptive predicate for the identification of the
doctrine in customary international law is amply met. This international
instrument engrafts upon the doctrine the status of an exception that
legitimizes a State’s discriminatory use of its regulatory authority as to
international investment, trade, or services so long as such regulation is in
furtherance of a public purpose. The Secretariat’s Note observes that a
State’s right to regulate is legitimate so long as it is in furtherance of a
public purpose, notwithstanding the effects that such regulation may have
on foreign investment, trade, or services. Further, the abrogation of the
national-treatment standard in favor of application of tax legislation
favoring domestic interests over foreign trade or investment can be
construed as the exercise of regulatory authority in furtherance of a public
purpose and, therefore, constituting a legitimate act of sovereignty.
420
Agreement Between the Swiss Confederation and the Republic of Indonesia
Concerning the Reciprocal Protection of Investments, Switz.-Indo., Feb. 6, 1974,
http://unctad.org/sections/dite/iia/docs/bits/suisse_indonesie.pdf.
.
EAST\64724221. 3156
Regulatory acts that arise from or are connected to a State’s economic
development policy have been identified as rising to the level of
exceptions in several BITs and, therefore, arguably also form part of
customary international law.
4.
UNCTAD World Investment Report 2012
The UNCTAD World Investment Report 2012 heralds a “new
generation” of investment policies that meaningfully broadens the
regulatory space of income-importing countries with respect to FDI.421
One construction of the 2012 Report leads to a seemingly paradoxical
conclusion. Even though it acknowledges the ostensible competing
interests between the promotion and development of FDI through
liberalization and constraining measures pertaining to a Host State’s
regulatory imperatives that may take the form of protectionism, the
UNCTAD Report represents a testament to an unmitigated broadening of
the public purpose doctrine that finds no precedent. The drafters
acknowledged:
This new generation of investment policies has been in the
making for some time, and is reflected in the dichotomy in
policy directions over the last few years, with simultaneous
moves to further liberalize investment regimes and promote
foreign investment on the one hand, and to regulate
investment in pursuit of public policy objectives on the
other. It reflects the recognition that liberalization, if it is to
generate sustainable development outcomes, has to be
accompanied – if not preceded – by the establishment of
proper regulatory and institutional frameworks. The key
policy change is to strike balance between regulation and
openness.422
What the drafters referred to as “the dichotomy in policy
directions” permeates the UNCTAD Report.423 The lack of clarity ailing
421
United Nations Conference on Trade & Development, World Investment Report 2012,
U.N. Doc. UNCTAD/WIR/2012, U.N. Sales No. E.12.II.D.3 (2012) [hereinafter WIR
2012].The UNCTAD World Investment Report 2012: Towards a New Generation of
Investment Policies, is also referred to as the 2012 Investment Report.
422
Id. at 101 (from World Investment Report 2010 Epilogue) (emphasis supplied).
423
The tension between interests and expectations of capital-exporting States (foreign
investor/investment) and the right to regulate as understood by Host States mostly
underdeveloped countries or transition economies) constitute a recurring theme
throughout the Report. By way of example, a key investment policy challenge is
identified as the need “[t]o adjust the balance between the rights and obligations of States
and investors, or making it more even.” Id. at 103.
EAST\64724221. 3157
investment law that arises from conflicting policy interests does violence
to core principles of uniformity, transparency, and predictability. The
absence of these basic tenets in turn fosters uncertainty and may explain in
large measure the very stark decline of investment treaty-making.
The decline in the momentum of traditional investment treatymaking is undeniable. BITs and other types of international investment
agreements (IIAs) reached maximum proliferation in 1995 and 1996 with
notable spikes in 2001 and 2002.424 In 2011 only 47 ITAs international
investment agreements were signed (33 BITs and 14 other IIAs).425
Equally significant is the decline of the economic significance of BITs. As
of December 31, 2001, 3164 international investment agreements were
registered as in force. These included 2833 BITs and the remaining 331
were other types of IIAs.426 The 2012 Report asserts that while “[i]n
quantitative terms, bilateral agreements still dominate international
investment policy-making; however, in terms of economic significance,
there has been a gradual shift towards regionalism.”427 The Trans-Pacific
Harmonizing these competing interests is also noted in the Report as a condition
preceding to negotiating sustainable-development-friendly international investment
agreements. The drafters observed:
Ensuring an appropriate balance between protection commitments and
regulatory space for development: IIAs [international investment
agreements] protect foreign investment by committing host country
governments to grant certain standards of treatment and protection to
foreign investors; it is the very nature of an IIA’s standards of
protection, and the attendant stabilizing effect, to place limits on
government regulatory freedom…. Countries can safeguard some
policy space by carefully crafting the structure of IIAs, and by
clarifying the scope and meaning of particularly vague treaty provisions
such as the fair and equitable treatment standard and expropriation as
well as by using specific flexibility mechanisms such as general or
national security exceptions and reservations.
Id. at 136. Here it is important to note that the treaty language that the drafters refer to as
in need of further clarification for purposes of preserving party expectations concerns
standard s of treatment provided by the Host State to the foreign investor/investment.
There is an equal and even greater need, however, to identify with specificity those
principles, most notably the public purpose doctrine, that govern a State’s exercise of
sovereignty through its regulatory-making authority.
424
Id. at 84.
425
Id.
426
Id.
427
Id.
EAST\64724221. 3158
Partnership Agreement,428 the 2012 Trilateral Investment Agreement
between China, Japan, and the Republic of Korea,429 and EEU measures
arising from the EU Council’s Directive to the EU Commission to Initiate
Negotiations for a Free Trade Agreement with Canada, India, and
Singapore is an excellent example. The material economic significance of
such an agreement is highlighted by the financial strength of the member
States, which comprises approximately twenty-five percent of the Global
GDP and fifty percent of Global FDI.430
The UNCTAD Report advances two general propositions, among
others, for the decline in traditional international investment agreement
treaty-making. First, it is asserted that the phenomenon may result from
the “gradual shift towards regional treaty-making, where a single regional
treaty takes the place of a multitude of bilateral pacts and where regional
blocs (instead of their individual members) negotiate with third States.”431
428
This agreement is in its twelfth round of negotiations and includes nine participating
countries (Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Perú, Singapore,
the United States, and Vietnam). Moreover, Canada and Mexico have been tendered
formal invitations to participate in the negotiations. Japan has expressed interest in
forming part of the effort. Should all twelve countries reach agreement, a free trade zone
shall be created comprising 35% of the global gross domestic product (GDP) and
potentially replacing 47 IIAs in the form of 18 BITs and 29 other types of IIAs,
governing current international trade and investment relationships between these
countries. Id. at 85.
429
From an economic perspective, this agreement is comparable to the NAFTA. These
three signatories account for one-fifth of the global GDP. The agreement accords foreign
investment/investors with the panoply of protection standards common to most BITs and
regional investment treaties such as (i) promotion and protection of [Article 2], (ii)
national treatment [Article 3], (iii) most-favoured nation treatment [Article 4], (iv) “fair
and equitable treatment” and “full protection and security,” which are defined as not
requiring “treatment in addition to or beyond any reasonable and appropriate standard of
treatment in accordance with generally accepted rules of international law” [Article 5],
(v) prohibition of performance requirements [Article 7] and, (vi) expropriation and
compensation [Article 11], quite substantive regulatory space is carved out. Signatories
reserve the right to implement measures that otherwise would violate provisions of the
agreement, in the form of (i) security exceptions [Article 18], (ii) temporary safeguard
measures [Article 19], (iii) prudential measures [Article 20], (iv) taxation [Article 21],
and (v) environmental measures [Article 23]. Moreover, Article 11 [Expropriation and
Compensation] virtually mirrors that of the NAFTA’s Article 1110 paragraph 1(a)-(d)
and, as with the NAFTA, provides for a “public purpose” exception. Also, similar to the
NAFTA, measures “equivalent” to an expropriation or nationalization are recognized.
The NAFTA speaks in terms of measures “tantamount” to a nationalization or
expropriation. See Agreement Among the Government of Japan, the Government of the
Republic of Korea and the Government of the People’s Republic of China for the
Promotion, Facilitation and Protection of Investment, May 13, 2012,
http://www.bilaterals.org/IMG/pdf/20120513001-3.pdf.
430
WIR 2012, supra note 423, at 85.
431
Id. at 84.
EAST\64724221. 3159
Second, the Report cites to IIAs as “becoming increasingly controversial
and politically sensitive, primarily owing to the spread of IIA-based
investor-state arbitrations.”432
Both grounds in considerable measure are related to the
shortcomings of the legacy public purpose doctrine. This proposition,
however, is nowhere observed in the UNCTAD literature. Indeed, the
Report is paradoxical because in identifying the flawed treaty management
dichotomy between the capital-exporting countries and capital-importing
countries, it not only overlooks problems related to the uncertainties
arising from an ill-defined underlying public purpose doctrine, but actually
argues in favor of an even more expansive legal construction of the
doctrine based upon the policy of “sustainable development.”433 In fact,
the UNCTAD Report views an active regulatory course of conduct by
States as favorable to FDI rather than as a source of concern for
prospective investors from capital-exporting States.434
The trend towards regional or multilateral treaties in lieu of BITs is
a testament to a Global appetite for greater uniformity and certainty that
would proscribe increasing and recurring frustration of expectations on the
part of capital-exporting and capital-importing States. It is an untested
assumption, however, to posit that regional or multilateral agreements
shall eliminate the fundamental ills giving rise to these tensions where the
scope of general or specific exceptions, most notably those based on
public purpose, manifestly favor or empower Host States to infringe on
foreign investments in ways that parties to the agreement could not have
reasonably contemplated. Also, the success in achieving the objectives of
international trade law do not necessarily imply that the goals incident to
international investment law also are likely to be met. The NAFTA
432
Id.
433
“Sustainable development” may be characterized as a “policy” but its practical
application and theoretical underpinning suggest that both doctrinally and conceptually it
is best treated as a principle. Standing as a “principle” instead of a “policy” best promotes
uniformity and regulatory transparency. Moreover, policies are more properly associated
with specific States and regimes in contrast with the delocalized and territorially detached
nature of principles.
434
The 2012 UNCTAD Report views regulation as not only a State right, “but also a
necessity. Without adequate regulatory framework, a country will not be attractive for
foreign investors, because such investors seek clarity, stability, and predictability of
investment conditions in the Host State.” Id. at 109. In addition, the Report views
increased government role in investment policy as a plus that gives rise to “strategies
[that] often contain elements of targeted investment promotion or restriction, increasing
the importance of integrated and coherent development and investment policies.” Id. at
100.
EAST\64724221. 3160
arguably stands as a faithful and representative example of the material
disconnect that may characterize an international investment agreement.435
The second ground identified as “a likely reason” for the decline of
BIT-making, e.g., increased controversy surrounding international
investment agreements primarily resulting from treaty-based arbitrations
that are expensive, time-consuming, politically polarizing, and often
lacking predictive value while also yielding awards with pretentions of
being universally executable but practically raising almost insurmountable
enforcement challenges, constitutes a descriptive phenomenon and not a
causal first principle. As with the proliferation of regional or multilateral
international investment and trade agreements, general transparency and
particular lucidity as to fundamental standards of care that attach to
foreign investments/investors, are predicates to fulfilling the expectations
of treaty signatories and participants/beneficiaries. Policies pertaining to
international investment or trade cannot be fashioned and implemented in
the abstract. Such policies must heavily weigh a new Global paradigm
shift from independence to interdependence that most comprehensively
and efficiently comports with an environment of economic globalization,
and a juridical historical juncture that has begun to understand orthodox
conceptions of international law as unresponsive to shared Global
crises.436 The shared transnational problems facing the community of
nations (environmental and climate challenges, poverty, institutionalized
corruption, infant mortality, vertical and horizontal nuclear proliferation,
and stark disparities globally in the distribution of natural resources, to
name just a few) have contributed to the creation of a Global
consciousness of shared obligations and benefits.
435
The NAFTA’s economic success is undisputed. See, e.g., Jeffrey Turk, Compensation
for “Measures Tantamount to Expropriation” Under NAFTA: What It Means and Why It
Matters, 1 INT’L L. & MGMT. REV. 41, 77 (2005) (stating “NAFTA is generally
considered to be a great economic success”); David R. Haigh, Q.C., Chapter 11 - Private
Party vs. Governments, Investor-State Dispute Settlement: Frankenstein or Safety Valve?,
26 CAN.-U.S. L.J. 115 (2000) (“Measured by the increase of trade and investment among
the three North American economies, the NAFTA appears to have been an unparalleled
success.”); Daniel Griswold, NAFTA at 10: An Economic and Foreign Policy Success,
FREE
TRADE
BULL.
NO.
1
(Dec.
2002),
available
at
http://www.cato.org/sites/cato.org/files/pubs/pdf/FTB-001.pdf (arguing that NAFTA “has
spurred trade, investment, and integration between the United States and Mexico”); see
generally OFFICE OF U.S. TRADE REP., EXEC. OFFICE OF THE PRESIDENT, NAFTA: A
Decade of Success (July 2004), http://www.ustr.gov/about-us/press-office/factsheets/archives/2004/july/nafta-decade-success.
The NAFTA decisional law and textual analysis, suggest that the lack of definition of
special and general exceptions premised on the public purpose doctrine or any of its
permutations cause considerable uncertainty and often spawns conflicting doctrinal
analyses.
436
See supra Chapter 2.B.
EAST\64724221. 3161
The current IIA regimes, whether in the form of BITs or
multilateral agreements, are conducive to a pattern of international dispute
resolution that culminates in “all or nothing” arbitral awards, primarily
with respect to direct or indirect expropriation or nationalizations, or
averments tantamount to expropriation. Contemporary expectations of
shared duties and benefits are inimical to orthodox doctrines providing for
“zero-sum game” legal frameworks. The “increasingly controversial and
politically sensitive” issues that the 2012 Report identifies as “primarily
owing to the spread of IIA-based investor-state arbitrations,” are not
caused by the formal or substantive structure of BITs, but rather as a result
of legacy orthodox legal concepts, that obscure the boundaries between
competing treaty interests and objectives, such as the public purpose
doctrine. The ad hoc nature of treaty-based arbitration that gives rise to
awards that do not and cannot constitute binding precedent and that
reference protection standards common to most BITs as to nomenclature
but not definition, certainly does not help.
The 2012 Report explicitly and implicitly identifies the public
purpose doctrine while adhering to the legacy practice it follows the
practice of assuming that public purpose in content, scope, and application
is universally understood. The drafters amplified the doctrine’s scope by
linking it to policies of sustainable development.437 It becomes necessary
437
Sustainable development or economic development policies are broadening the scope
and enriching the content of the public purpose doctrine as part of what the UNCTAD
World Investment Report 2012 identifies as “a new generation of investment policies.”
These international instruments may be viewed as part of an international customary law
trend providing “economic development policies” with the status of a normative
foundation that grants States a right to regulate that may have adverse consequences with
respect to foreign economic interests. The following representative, and hardly
exhaustive, list evinces this trend:
(i) The 2012 UN Guiding Principles on Business and Human Rights.
Although aspirational the principles seek the implementation of the
“Protect, Respect and Remedy” rubric that was presented by the UN
Special Representative John Ruggie in 2006. These principles
encourage the modification of international investment agreements to
provide for a regulatory space allowing for the protection of human
rights. They also call for business disclosure of the effects of their
commercial activities on human rights to relevant stakeholders;
(ii) The 2012 Revision of the International Chamber of Commerce’s
Guidelines for International Investment (1972) The 2012 revision
promotes responsible investment that comports with the economic
development of Host States and in addition to underscoring the need for
investors to obey municipal and international labor law, suggests that
investors conduct environmental impact studies as a predicate to
investment development. The Guidelines emphasize the need for Home
States to generate FDI that may contribute to the economic
development of Host States;
EAST\64724221. 3162
to inquire whether the legacy public purpose doctrine, broadened to
include the principle of sustainable development primarily undertaken by
capital-importing countries (presumably Host States), can reasonably limit
the scope of sustainable development as a principle of both customary and
conventional international law? Put differently, if sustainable development
forms part of the public purpose doctrine and, therefore, is to constitute a
universally recognized exception mostly favoring Host State domestic
regulatory activity, is the legacy public purpose doctrine in its current
form sufficient to balance application of the exception without
compromising Home State expectations or Host State obligation standards
for the protection of foreign investment? Only by ascribing to sustainable
development based exceptions the status of a special public purpose
category subject to qualifications will it be able to further the development
objectives of most capital-importing countries without just outright vesting
them with a boundless license to regulate irrespective of treaty-based
obligations to protect foreign investment/investors.
5.
The Public
Development
Purpose
Doctrine
and
Sustainable
The UNCTAD report identifies a shift in policy-making, as a
reaction to shared Global crises, that in turn gives rise to four specific
consequences bearing on the development and application of the public
purpose doctrine. According to the argument, first, it is asserted that
economic and market prices “[have] accentuated a longer-term shift in
economic weight from developed countries to emerging markets.”438 This
unsolicited protagonistic role has caused underdeveloped countries to have
greater participation in Global policy-making.439 It should be added that
the economic development in prospering nations such as China in
particular, also has contributed to providing developing nations and
economies in transition with greater standing in addressing policies for
current Global issues.440 Second, the Global financial crisis has increased
(iii) The Doha Mandate, adopted at the UNCTAD XIII Ministerial
Conference 2012. The Mandate synthesizes UNCTAD’s mission as
primarily consisting in the (i) promotion of sustainable development
and (ii) inclusive growth with respect to investment and enterprise; and
(iv) The 2012 Rio Plus 20 Conference leading to the Outcome
Document, “The Future We Want.” The Future We Want promotes
investment in sustainable development frameworks that may contribute
to reducing poverty.
438
WIR 2012, supra note 423, at 99.
439
Id.
440
China’s sustained economic growth at an average rate of 10.41% during the past 20
years, WORLD BANK, World Development Indicators: GDP growth (annual %),
http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?page=1 (last visited Apr. 8,
EAST\64724221. 3163
domestic government regulation in both capital-exporting and capitalimporting States.441 This increase in more vibrant and robust regulatory
activity is a positive development, but unlike the authors of the 2012
Report who opine that vibrant government intervention in promoting
regulations leads to transparency and thereby encourages FDI, the
foundation for this proposition remains unclear.442 There is a paucity of
empirical data supporting the proposition that a “developed” or “robust”
regulatory rubric allays home country investor concerns. Only regulatory
transparency can meet this concern. It is much more likely that objective
and clearly delineated limits on the application of domestic regulation in
ways that may affect international investment protection standards may
best contribute to this objective. In this regard, a public purpose doctrine
governed by objective criteria that serves both to regulate and to limit
regulation in transparent ways that justify investor expectations would be
an appropriate technique that may serve as an exception, as well as a
principle conducive to legitimate home and host country expectations. It is
the limits, not the complexity, of a regulatory framework that gives rise to
process legitimacy.
Third, the UNCTAD report observes that Global challenges
require Global responses and solutions.443 It is precisely this synergy
between crisis and solution that best advocates for the development of
transnational, and not just international, legal principles that serve more
than mere regulation of relations between two specific States on a limited
agenda basis. Fourth, the primacy of social and environmental challenges
has led “policy makers to reflect on an emerging new development
paradigm that places inclusive and sustainable development goals on the
same footing as economic growth and development goals.”444
As part of UNCTAD’s effort to enhance the sustainable
development dimension of international investment policies, thus placing
sustainable development squarely within the purview of the public
purpose doctrine, three self-contained frameworks that include meaningful
references to the public purpose doctrine have been crafted: (i) core
2013), meaningfully has contributed to the economies of resource-rich developing
nations such as Brazil. Economic development in a global market and framework
necessarily fosters greater interdependence that results in more meaningful policy
standing for underdeveloped countries.
441
WIR 2012, supra note 423, at 99.
442
See id. at 108.
443
The drafters specifically State that “the nature of the challenges, which no country can
address in isolation, make better international coordination imperative.” Id., at 99.
444
Id.
EAST\64724221. 3164
principles for investment policy making for substantial development,445
(ii) national investment policy guidelines,446 and (iii) Elements of
International Investment Agreements: Policy Options.447
The core principles for investment policy making for sustainable
development are particularly helpful to identifying the role of public
purpose in customary international law, as well as in connection with the
sustainable development public purpose category, because these central
precepts are traceable to a substantial gamut of existing international law,
international law instruments, treaties, and declarations.448 Even though
the public purpose doctrine arguably plays a role in all eleven Core
Principles,449 it is explicitly referred to in principle number six (the right to
445
Id. at 107.
446
Id. at 123.
447
Id. at 143.
448
The World Investment Report provides, in relevant part:
Several other international instruments relate to individual Core
Principles. They comprise, in particular, the Universal Declaration of
Human Rights and the UN Guiding Principles on Business and Human
Rights, the Convention on the Establishment of the Multilateral
Investment Guarantee Agency, the World Bank Guidelines on the
Treatment of Foreign Direct Investment, the UN Global Compact, the
OECD Guidelines for Multinational Enterprises and the ILO Tripartite
Declaration of Principles concerning Multinational Enterprises and
Social Policy, and several WTO-related agreements, including the
GATS, the TRIMs Agreement and the Agreement on Government
Procurement.
Id. at 106.
449
These Core Principles are (i) investment for sustainable development (“The
overarching objective of investment policy making is to promote investment for inclusive
growth and sustainable development.”); (ii) policy coherence, (“Investment policies
should be grounded in a country’s overall development strategy. All policies that impact
on investment should be coherent and synergetic at both the national and international
level.”); (iii) public governance and institutions (“Investment policies should be
developed involving all stakeholders, and embedded in an institutional framework based
on the rule of law that adheres to high standards to public governance and ensures
predictable, efficient and transparent procedures for investors.”); (iv) dynamic policy
making (“Investment policies should be regularly reviewed for effectiveness and
relevance and adapted to changing development dynamics.”); (v) balanced rights and
obligations (“Investment policies should be bound in setting out rights and obligations of
State’s and investors in the interest of development for all.”); (vi) right to regulate (“Each
country has the sovereign right to establish entry and operational conditions for foreign
investment, subject to international commitments, in the interest of the public good and to
minimize potential negative effects.”) (emphasis supplied); (vii) openness to investment
(“In line with each country’s development strategy, investment policy should establish
open, stable, and predictable entry conditions for investment.”); (viii) investment
EAST\64724221. 3165
regulate) in the form of “the interest of the public good.”450 According to
the notes on principle six, the right to regulate, from a sovereignty
perspective, is expressed as generally being (i) an absolute right stemming
from sovereignty, (ii) a necessary right encompassing legal, administrative
frameworks, and industry-specific rules, and (iii) a condition preceding
without which prospective investors would be dissuaded from investing in
host countries because of lack of regulatory framework transparency.451
The general right to regulate proposition is tempered by noting
that its seemingly absolute fiat “can be subject to international obligations
that countries undertake; with regard to the treatment of foreign investors
this often takes place at the bilateral or regional level. International
commitments thus reduce ‘policy space’. This principle advocates that
countries maintain sufficient policy space to regulate for the public
good.”452
protection and treatment (“Investment policies should provide adequate protection to
established investors. The treatment of established investors should be nondiscriminatory.”); (ix) investment promotion and facilitation (“Policies for investment
promotion and facilitation should be aligned with sustainable development goals and
designed to minimize the risk of harmful competition for investment.”); (x) corporate
governance responsibility (“Investment policies should promote and facilitate the
adoption of a compliance with best international policies of corporate social
responsibility and good corporate governance.”); and (xi) international cooperation (“The
international community should cooperate to address shared investment-for-development
policy challenges, particularly in least developed countries. Collective efforts should also
be made to avoid investment protectionism.”). Id.
450
Id. at 106.
451
The Report describes this right as:
[A]n expression of a country’s sovereignty. Regulation includes both
the general and legal and administrative framework of host countries as
well as sector- or industry-specific rules. It also entails effective
implementation of rules, including the enforcement of rights.
Regulation is not only a State’s right, but also a necessity. Without an
adequate regulatory framework, a country will not be attractive for
foreign investors, because such investors seek clarity, stability and
predictability of investment conditions in the host country.
Id. at 109.
As has been observed, the “adequacy” of a regulatory framework that is material to
foreign investment concerns clear and predictable limits to the regulatory structure at
issue. A functional public purpose doctrine would foremost place such limits uniformly
on a transnational basis.
452
Id. (emphasis supplied).
EAST\64724221. 3166
The UNCTAD Notes to Principle Six (the right to regulate)
references the public purpose doctrine, this time in the guise of “the public
good,” as the precept that allows countries to secure a regulatory space in
the midst of treaty obligations imposing upon it standards to protect
foreign investment/investors, and presumably, home country investor
expectations.
Two observations merit emphasis with respect to the Core
Principles generally and Principle Six (the right to regulate) in particular.
First, the public purpose doctrine (“the public good”) is nowhere defined
despite its pivotal role.453 Second, the doctrine is presented as a precept
allowing countries (presumably mostly Host State underdeveloped
countries) to avail themselves of the public purpose doctrine in order to
“maintain sufficient policy space” to exercise the right to regulate despite
limitations imposed on that exercise of sovereignty by bilateral or regional
investment treaties.454 Viewed from this perspective the concern would
appear to be the likelihood of encroachment on the right to regulate arising
from duly negotiated treaty-based obligations and thus transform a right to
regulate into an illicit action on behalf of the State warranting imposition
of a fine in the form of liability in favor of foreign investors.
A different approach would be to understand the public purpose
doctrine as a principle of international law that neither fosters nor
proscribes regulatory activity, but rather harmonizes it as a reconciling
principle pursuant to an objective criteria disengaged from a State’s intent.
Fashioning the doctrine in this manner most closely comports with more
malleable principles of sovereignty, economic globalization, and
paradigms of interdependence. It also is conceptually closer to a
proportionality premised resolution of disputes that challenge the
boundaries between investment protection and the right to regulate.
Regrettably, the concept of public purpose, its standard, content, and
practical application, all are assumed. The term “public good” within the
meaning of Principle Six of the Core Principles is nowhere defined. “Selfevident status,” again is accorded to the doctrine. Just as public purpose
cannot be extended to all things that touch and concern the polity, the
453
Even though only Principle Six (right to regulate) explicitly references the public
purpose doctrine expressed as the public good, the doctrine is central to most, if not to all,
of the Core Principles. By way of example, Principle 5 (balance rights and obligations)
seeking to harmonize the interests of home and Host States, necessarily entails the
workings of a public purpose doctrine. Similarly, Principle 8 (investment protection and
treatment) proscribing discriminatory practice aimed at foreign investors and fostering
“adequate protection to established investors” would lack all practical application were it
to lack a public purpose doctrine organizing tenet providing for regulatory space while
limiting the effects of regulatory pronouncements on the reasonable expectations of
foreign investors.
454
WIR 2012, supra note 423, at 109.
EAST\64724221. 3167
policy of sustainable development unrestricted by a public purpose
construct, would attach to all financial or economic endeavors undertaken
by a developing nation under the welcoming banner of “economic
development.”
The National Investment Policy Guidelines455 (“NIPG”) aspire to
translate the Core Principles into practical and “implementation friendly”
policy strategies that may help develop and frame rules and regulations
amenable to sustainable development. Therefore, it is not surprising that
the public purpose doctrine is both just as fleeting and central to the NIPG
as it is to the Core Principles and the NIPG. The public purpose doctrine is
never defined or otherwise explained. Its presence, however, is obvious
even in instances where neither the doctrine nor any of its iterations are
explicitly referenced, as is the case with respect to Subsection 2.2-2.2.3.456
The explicit reference to “not only the right but the duty to regulate,”457
because of the conceptual relationship between the Core Principles and the
National Investment Policy Guidelines, established that public purpose is
the doctrinal governing principle as to this subsection. Within the
framework of the UNCTAD Report, the right to regulate is subject to a
legitimate and cognizable public purpose.458 Accordingly, Subsection
2.2.3 of the NIPG must be viewed as directly and explicitly dependent on
the public purpose doctrine.
Along the lines of Subsection 2.2.3, Subsection 2.2.7 “Investment
Contract” also fails to identify the public purpose doctrine by any of its
orthodox iterations. Instead, however, it references an abbreviated and
surface definition:
States should honor their obligations deriving from
investment contracts with investors, unless they can invoke
fundamental change of circumstances or other legitimate
reasons in accordance with national and international
law.459
455
Id. at 123.
456
Id. at 124. Section 2 (Investment Regulation and Promotion), Subsection 2.2
(Treatment and Protection of Investors Treatment under the Rule of Law Core Standards
of Treatment), paragraph 2.2.3 reads: “While recognizing that countries have not only the
right but the duty to regulate, regulatory changes should take into account the need to
ensure stability and predictability of the investment climate.” Id. (emphasis in original).
457
Id. (emphasis in original).
458
See supra note 455 & accompanying text.
.
459
WIR 2012, supra note 423, at 125 (emphasis supplied).
EAST\64724221. 3168
This subsection, however, is best understood when read together
with Subsection 2.2.8, “Expropriation,” which does in fact refer to the
doctrine by explicit nomenclature. This subsection reads:
When warranted for legitimate public policy purposes,
expropriations or nationalizations should be undertaken in a
non-discriminatory manner and conform to the principle of
due process of law and compensation should be provided.
Decisions should be open to recourse and reviews to avoid
arbitrariness.460
Subsection 2.2.8 expands on the abbreviated “legitimate reasons”
enunciated in Subsection 2.2.7 by linking legitimate with public policy
purposes. This is a wholesale regurgitation of the public purpose doctrine
in the context of expropriation or nationalization in the NIPG to the
general rule of international law—providing that expropriations,
nationalizations, whether direct, indirect, or comprising of other actions
tantamount to expropriation are proscribed unless they are undertaken in
furtherance of (i) a public purpose, (ii) in accordance with due process of
law, (iii) on a non-discriminatory basis, and (iv) for compensation.461 It
follows that the NIPG, while serving as compelling evidence that the
public purpose doctrine is present and actually featured as a conceptually
fundamental premise in international instruments and therefore by such
measure part of customary international law, does not bring jurists,
commentators, or practitioners any closer to a meaningfully functional
understanding of the doctrine.
The third pillar of the sustainable development exception here
contextualized as falling within the ambit of the public purpose doctrine,
are the Elements of International Investment Agreements: Policy Options
(“International Policy Options”)462 Consonant with the Core Principles
and the NIPG, the international policy guidelines seek to incorporate the
Core Principles into the rule-making space of international law, i.e., the
fashioning of treaties and other international agreements as with the Core
Principles and the NIPG, the public purpose doctrine occupies a special
place that both identifies the central and determinative features of the
legacy public purpose doctrine as well as the non-workable elements that
are no longer responsive to the transnational needs of home and Host
States within a framework of interdependence and economic globalization.
In fact, all three explicit references to the doctrine within the international
policy guidelines merit detailed consideration.
460
Id. (emphasis supplied).
461
Cf. NAFTA, supra note 18, art. 1110.
462
WIR 2012, supra note 423, at 143.
EAST\64724221. 3169
Four explicit references to the public purpose doctrine are
contained in the international policy options as viable alternatives that can
be incorporated into international investment agreements. First, Section
2.3 (Exclusions from the Scope) suggests the use of carve-out provisions
in treaty language. Public purpose related carve-outs are divided into (i)
specific policy areas, and (ii) specific sectors and industries.463 Subsidies
and grants, public procurement, and taxation are listed as examples of
specific policy areas that can be excluded from treaty language.464
Similarly, essential social services (such as health and education) and
sensitive industries (cultural industries, fisheries, nuclear energy, defense,
and natural resources), also are identified as counterpart-specific sectors
and industries that can be removed from treaty jurisdiction.465 The
rationale underlying Section 2.3 quite lucidly identifies the basic
mechanics between constraints placed on a Host State arising from a
broader treaty scope as to the capital-importing country’s policy space and
possible liability to investor claims, and the sustainable development
(public purpose) related Host State objectives.466 The International Policy
Options, however, are admittedly exploring ways in which international
investment agreements may further sustainable development. Put
differently, but preserving the substantive meaning of this objective, the
International Policy Options seek to maximize the regulatory space in
which the right to regulate is exercised, while realistically considering the
potential detrimental effect of such carve-outs on prospective FDI.467
463
Id. at 145.
464
Id.
465
Id.
466
The drafter’s annotations on the sustainable development implications of treaty carveout or scope techniques aptly reflects a keen awareness of the dynamics between home
and Host States:
The broader a treaty’s scope, the wider its protective effect and its
potential contribution to the attraction of foreign investment, however,
a broad treaty also reduces a Host State’s policy space and flexibility
and ultimately heightens its exposure to investors’ claims. States can
tailor the scope of the agreement to meet the country’s [sustainable
development] agenda.
Id. Framing the relative concerns and expectations of home and Host States in terms of
claim exposure is not a comprehensive framing of the issue that the drafters themselves
identified, i.e., rendering a Host State an attractive FDI target while preserving the Host
State’s right to regulate for a public purpose. A “claims analysis” approach, albeit
practical, conceptually is too limited. Id.
467
The International Policy Options’ emphasis on Host States, without according due
consideration to the expectations of foreign investors may easily be gleaned from the
annotations “By carving out specific policy areas and sectors/industries from treaty
EAST\64724221. 3170
The use of carve-out provisions in treaty language is a practical
and transparent approach to preserving a State’s regulatory space without
frustrating the expectations of Home State investors. A litany of carve-out
provisions within a treaty may give rise to interpretive constructions that
undermine the very goals that the carve-outs in the first instance sought to
advance.468 Section 4.5 on expropriation complies with the obligatory
reference to public purpose as one of four conditions that must be met in
the event of a dispossession of an investment by a Host State.469 In fact,
three of the four conditions—(i) public purpose,(ii) non-discrimination,
and (iii) due process—are expressed as “substantive conditions.”
Moreover, only by violating any of these three substantive conditions shall
“full reparation” ensue.470 Subsection 4.5.1 is particularly encouraging
because it provides a foundational challenge to crafting a special public
purpose category pertaining to sustainable development.471 Despite the
coverage, States preserve flexibility to implement national policies, such as industrial
policies (e.g., to grant preferential treatment to domestic investors or to impose
performance requirements), or to ensure access to essential/public services.” Id.
468
By way of example, Article 32 (“Supplementary Measures of Interpretation”) of the
Vienna Convention on the Law of Treaties provides for recourse “to supplementary means
of interpretation.” VCLT, supra note 105, art. 32. The veritable chestnut expressio unius
est exclusio alterius applied to an instrument that contains multiple carve-out provisions
may lead to a restrictive construction of the public purpose doctrine under specific facts.
For example, in applying the legal maxim expressio unius est exclusio alterius, the
United States Supreme Court, citing Chancellor Kent, Stated in Tucker v. Alexandroff:
‘Treaties of every kind . . . are to receive a fair and liberal interpretation
according to the intention of the contracting parties, and to be kept with
the most scrupulous good faith. Their meaning is to be ascertained by
the same rules of construction and course of reasoning which we apply
to the interpretation of private contracts.’
183 U.S. 424, 437 (1902); see also Lozano v. Alvarez, 697 F.3d 41, 50 (2d Cir. 2012)
(“General rules of statutory construction may be brought to bear on difficult or
ambiguous passages, but we also look beyond the written words to the history of the
treaty, the negotiations, and the practical construction adopted by the signatory parties in
determining the meaning of a treaty provision.”); Coplin v. United States, 6 Cl. Ct. 115,
127 (1984) (“[T]he enumeration of certain powers with respect to a particular subject
matter is a negation of all other analogous powers with respect to the same subject
matter.... The rule is curtly Stated in the familiar legal maxim, expressio unius est
exclusio alterius.”) (citing Tucker v. Alexandroff, 183 U.S. 424, 436 (1902)).
469
WIR 2012, supra note 423, at 148.
470
Id.
471
Subsection 4.5.1 reads:
Limit protection in case of indirect expropriation (regulatory taking) by
 establishing criteria that need to be met for indirect expropriation
to be found,
EAST\64724221. 3171
International Policy Options’ developing country agenda focused on
furthering sustainable development—in part through appropriate drafting
of international investment agreements—the challenge of how best to
balance the competing interests between FDI protection expectations and
Home State right to regulate concerns pertaining to critical sectors was
clearly acknowledged.472 The drafters sought to mitigate prospective
liability against Host States arising from this issue by relying on drafting
techniques rather than seeking to modify existing principles of
international law:
To avoid undue constraints on a State’s prerogative to
regulate in the public interest, an IIA may set out general
criteria for State acts that may (or may not) be considered
an indirect expropriation. While this does not exclude
viability risks altogether, it allows for better balancing of
investor and State interests.473
Treaty-drafting techniques may contribute to furthering process
legitimacy and party expectation concerns, but they will not eviscerate the
detrimental consequences stemming from a public purpose doctrine that
adheres to a subjective standard and that is unduly expansive as to content.
In addition, the balancing of interests between capital-exporting and
capital-importing countries in the realm of international investment law
should not be framed in terms of what may be necessary from the

defining in general terms what measures do not constitute
indirect expropriation (non-discriminatory good faith regulations
relating to public health and safety, protection of the environment,
etc.)

clarifying that certain specific measures do not constitute an
indirect expropriation (e.g., compulsory licensing in compliance
with WTO rules).
Id.
472
The annotations to Section 4.5 (Expropriation) of the International Policy Options
provide, in relevant part:
IIA provisions typically cover ‘indirect’ expropriation, which refers to
regulatory takings, creeping expropriation and acts ‘tantamount to’ or
‘equivalent to’ expropriation. Such provisions have been used to
challenge general regulations with an alleged negative effect on the
value of an investment. This raises the question of the proper borderline
between expropriation and legitimate public policymaking (e.g.,
environmental, social or health regulations).
Id.
473
Id. (emphasis supplied).
EAST\64724221. 3172
perspective of Host State efforts “[to] exclude liability [and] risks
altogether.”474 Instead, the objective should be to use or develop existing
principles so that obligations running in favor of foreign investment
protection may be duly balanced as to the exercise of domestic regulatory
authority, all within a framework of interdependence and shared
responsibility. Interdependence and shared responsibility in turn bespeak
the need to re-examine application of proportionality and an end to
“winner take all” resolutions.
The third reference to public purpose within the International
Policy Options is in Section 5, entitled: “Public Policy Exceptions.”475 In
the same spirit as Section 4.5, which encourages the drafting of general
criteria in order to identify indirect expropriations arising from regulatory
fiat, Section 5 emphasizes the use of drafting techniques, both to broaden
and to “limit” public-purpose-based exceptions.476
The scope of the suggested public purpose exceptions, however, is
problematic because it suffers from being overbroad and conceptually
indistinguishable from “limiting” the public purpose doctrine as pertaining
“only” to all things public. Even though Subsection 5.1.3 purports to be a
provision that encourages limiting the exception, the suggested limitation
is fundamentally boundless. It provides:
5.1.3 Limit the exception by specifying:
-
that the exception only relates to certain
types of measures, e.g., those relating to
trafficking in arms or nuclear nonproliferation; or taken in pursuance of
State’s obligations under the UN Charter for
the Maintenance of International Peace and
Security;
-
that it only applies in times of war or armed
conflict or in emergency in international
relations.477
Certainly, categorical specificity serves as a meaningful limitation as to
scope. Further qualification as suggested still remains a necessity. A
general category is only as functional as additional specifications in the
474
Id.
475
Id. at 151.
476
Id.
477
Id.
EAST\64724221. 3173
form of subcategories that have a narrowing effect akin to concentric
circles such that very specific acts or omissions would trigger application
of the exception. Section Five’s objective is to broaden the regulatory
space of Host States. Subsection 5.1.2, for example, encourages
“[b]roaden[ing] the exception by clarifying that national security may
encompass economic security.”478
The expansive and all-encompassing definition of public purpose
asserted in Section Five simply cannot be cured by enumerating a rosary
of categories as Subsection 5.1.4 suggests. That subsection invites IIA
negotiators and drafters “[to]include exceptions for domestic regulatory
measures that aim to pursue legitimate policy objectives” such as those
aiming to:
478
Id.
479
Id.
-
protect human rights,
-
protect human health,
-
preserve the environment (e.g., biodiversity,
climate change),
-
protect public morals or maintain public
order,
-
preserve cultural and/or linguistic diversity,
-
ensure compliance with laws and regulations
that are not inconsistent with the treaty,
-
allow for potential measures (e.g., to
preserve the integrity and stability of the
financial system),
-
allow for broader safeguards, including on
development grounds (to address host
countries’
trade
,
financial
and
developmental needs),
-
prevent tax evasion,
-
protect natural resources of artistic, historic
or archeological value (or ‘cultural
heritage’).479
EAST\64724221. 3174
All of the suggested public purpose categories of exceptions asserted in
Subsection 5.1.4 merely invite tautological reasoning. The protection of
public morals or maintenance of public order is illustrative in this regard.
Conceptually, virtually any State action or omission may reasonably fall
within this category. As a matter of evidentiary proof, the allencompassing scope of these two categories suggest that any particular act
allegedly falling with their respective purviews would be asserted as part
of a self-judging standard that would be difficult, if not altogether
impossible, to challenge.
As to Section Five, Public Policy Exceptions, the UNCTAD
Report’s drafters specifically contemplated amplifying Host States’
regulatory space by suggesting that general exceptions be crafted as selfjudging, i.e., pursuant to the subjective intent of the invoking State.480 The
UNCTAD Report’s unvarnished admission that a self-judging standard is
conducive to (i) reducing investor confidence and (ii) enhancing the
likelihood the “possibilities for abuse”481 [presumably on the part of Host
States against the interests of foreign investors], quite starkly identifies the
very problem that needs to be averted pursuant to the adaptation and
adoption of a functional public purpose doctrine.
Vesting States with functionally limitless discretion under the
banner of the “right to regulate” in furtherance of a public purpose
represents the very conceptual deficit of the legacy public purpose
doctrine that needs to be modified. Besides the obvious deterrents to FDI
endemic to such an approach, enhancing the likelihood of abuse and
corruption undoubtedly shall continue to contribute to a crisis in process
legitimacy at every critical juncture of international investment law.482 A
480
The annotations to Section Five, Public Policy Exceptions, State:
A number of features determine how easy or difficult it is for a State to
use an exception. To avoid review of the relevant measure by court or a
tribunal, the general exception can be made self-judging (i.e., the
necessity/appropriateness of the measure is judged only by the invoking
State itself). This approach gives a wide margin of discretion to States,
reduces legal certainty for investors and potentially opens possibilities
for abuse. In contrast, exceptions designed as not self-judging imply
that in case of a dispute, a court or tribunal will be able to determine
whether the measure in question is allowed by the exception.
Id. (emphasis supplied).
481
Id.
482
“Corruption within procurement systems has been prevalent throughout the world and
is not limited to developing countries.” Anne Janet DeAses, Developing Countries:
Increasing Transparency and Other Methods of Eliminating Corruption in the Public
Procurement Process, 34 PUB. CONT. L.J. 553, 554 (2005). Efforts to curb such
corruption have include the U.N. Convention Against Corruption, the Inter-American
EAST\64724221. 3175
self-judging standard for public purpose is inimical to the international
appetite for greater transparency and objective criteria concerning issues
pertaining to international trade and investment law.483 The self-judging
criteria not only would generate a greater number of expensive and
politically sensitive international disputes primarily in the form of treatybased arbitrations, but also contribute to the development of doctrinally
inconsistent arbitral “decisional-law.”484 The legacy public purpose
doctrine founded on a subjective standard cannot help but to contribute to
a body of persuasive precedent in the form of arbitral awards that lack
uniformity, predictive value, and transparency of standard in seeking to
strike the appropriate mean between an obligation in favor of protecting
FDI and the right (actually duty) to regulate.
Finally, Section 6.2 is the fourth provision in the International
Policy Options that most directly concern or explicitly reference the public
purpose doctrine. This section also relies on specific treaty drafting rather
than the development of appropriate legal precepts, as a methodology for
limiting the exposure of Host States to arbitral claims.485 The emphasis on
treaty negotiation and drafting suggested in subsection 6.2.4 suffers from
the identical shortcomings that also attach to the NIPG as to the extent to
which treaty drafting techniques may correct what is fundamentally a
doctrinal and conceptual legal issue. Also as with the NIPG, this
suggestion gives rise to a new set of concerns spawned by application of
these very treaty-drafting methodologies.486 The strictures of Subsection
Convention Against Corruption, and the OECD’s Convention on Combating Bribery of
Foreign Officials in International Business Transactions (Anti-Bribery Convention). Id.
at 561-68.
483
See supra note 141 & accompanying text.
484
See, e.g., supra Chapter 1.H.
485
Subsection 6.2.4 provides:
Limit States’ exposure to ISDS [investor-State dispute settlement], e.g.:
-
Clarify that certain treaty provisions and/or sensitive areas are
excluded from ISDS, e.g., national security issues, including
incoming investments; measures to protect the environment,
health and human rights; prudential measures; measures
relating to transfer of funds (or respective IIA provisions); tax
measures that do not amount to expropriation; IIA provisions
on transparency;
-
Specify only those issues/provisions to which ISDS should
apply (e.g., only to the expropriation provision).
WIR 2012, supra note 423, at 152.
486
See supra at Chapter 2.E(4).
EAST\64724221. 3176
6.2.4 of the International Policy Options, calling for the proliferation of
carve-out provisions in treaties so as to limit the subject matter of
international arbitration jurisdiction, stands in considerable contrast with
the annotations to Section 6.2 that identify generally the nature of the
issues that most commonly give rise to treaty-based arbitral disputes.
Embedded in the actual annotations are the very grounds that explain why
treaty-drafting techniques at most only may serve to minimally mitigate
challenges to abuse of regulatory authority in the context of FDI
protection. The most relevant part of the annotation on this issue reads:
As the number of ISDS [investor-state dispute settlement]
cases increases, questions have arisen with regard to the
effectiveness of the SD implications of ISDS. Many ISDS
procedures are very expensive and often take several years
to resolve. ISDS cases increasingly challenge domestic
regulatory measures implemented for public policy
objectives. Almost all ISDS cases lead to the breakdown of
the relationship between the investor and the Host State.
Due to the lack of a single, unified mechanism, different
tribunals have issued divergent interpretations of similarly
worded treaty provisions, resulting in contradictory
outcomes of cases involving identical/similar facts and/or
treaty language. Many ISDS proceedings are conducted
confidentially, which has raised concerns when tribunals
address matters of public policy.487
The annotation plainly emphasizes challenges to domestic regulatory
measures as an important cause of disputes and the eventual collapse of
relationships between investors and Host States. Quite remarkably, it very
aptly draws a connection between regulatory challenges and
“contradictory outcomes”488 generated by treaty-based arbitral tribunals. It
also observes that “similarly worded treaty provisions”489 lead to
contradictory results. Accordingly, the fundamental problem is not one of
formal uniformity, i.e., a common nomenclature, but rather a conceptual
disparity pertaining to the actual scope and content of the principles at
issue. The fundamental investor protection standards are uniform as to
form (i.e., nomenclature but not substance). The content is typically the
subject matter of negotiations under negotiating circumstances that rarely
generate written evidence of “intent.” Regrettably, BIT negotiations
evolve from a practice based on “model” (euphemism for “form”) treaties
487
WIR 2012, supra note 423, at 152.
488
Id.
489
Id.
EAST\64724221. 3177
that scarcely were submitted to rigorous academic analysis. Even
cornerstone terms such as “IMS” (international minimum standard) remain
less than static as to content and thus in negotiating scenarios. The
suggested drafting techniques asserted in Subsection 6.2.4, which detail
little more than engaging in an exhaustive recitation of subject matters, is
hardly adequate to address this problem. The issue is fundamentally of a
normative and doctrinal nature.
6.
The Public Purpose Doctrine and Lessons From
UNCTAD
Both the UNCTAD Secretariat’s Note—Concerning the
Development Dimension of Foreign Direct Investment: Policies to
Enhance the Role of FDI in the National and International Context as well
as the 2012 World Investment Report explicitly and implicitly reference
the public purpose doctrine. They contribute to the universe of evidence in
the form of international instruments establishing that the public purpose
doctrine constitutes part of customary international law. The UNCTAD
pronouncements identify the public purpose doctrine as central to what is
referred to as the right to regulate for the public interest (also expressed as
a duty),490 and as one of four principles that render an expropriation legal.
Even though the UNCTAD instruments identify an expansive
domestic regulatory space harmful to FDI, the public purpose doctrine is
used as an exception justifying a practically unbridled regulatory fiat on
the part of Host States. Sustainable development, as contained in the
UNCTAD documents, can be construed as a special public purpose
category. Regrettably, sustainable development is, to the extent that it is
“defined” at all, explained as encompassing practically all aspects of
economic and finance that may reasonably be related to a State’s
subjective development need. Put simply, this special public purpose
category is so broad that it cannot help but to displace any tempered and
harmonious relation between a State’s obligation to protect foreign
investments and its qualified right to regulate.
As expressed in the UNCTAD international instruments, the public
purpose doctrine is contemplated as a self-judging category the
appropriate application of which can only be determined by the invoking
State, which is generally a Host State developing country or economy in
transition. Substantial development, i.e., the public purpose doctrine, is
accorded broad content and a subjective standard as to both content and
application, even though the UNCTAD views that the amplification of the
regulatory space through this methodology is conducive to protracted,
490
Peter D. Szigeti, Territorial Bias in International Law: Attribution in State and
Corporate Responsibility, 19 J. TRANSNAT’L L. & POL’Y 311, 332 (2010) (arguing that
“the duty to regulate others’ acts is inherent in sovereignty, indeed in all political
power”).
EAST\64724221. 3178
expensive, and politically sensitive treaty-based arbitration disputes, and
also often leads to political corruption.
Although the UNCTAD concedes uncertainty and international
disputes are caused to proliferate because of conflicting constructions by
tribunals of like or similar treaty (presumably protection standards)
provisions, and these contentions in turn discourage FDI, the problem is
not framed as a legal issue pursuant to which doctrinal and conceptual
developments are warranted, but rather as a subject to cure through
application of treaty-drafting techniques. The analysis is problematic. This
lack of appreciation for the relationship between the need for doctrinal and
conceptual development and a proposed solution in the form of treaty
drafting and editing techniques is emblematic of the deeper crisis that the
legacy public purpose doctrine in considerable measure has caused. The
mechanical recitation of public purpose, in all of its incarnations, has
created a culture of acceptance and presumption that the meaning of
public purpose is understood by all and in the same way. This fallacy in
turn has led to the frustration of party expectations in the field of
international investment law and caused capital-exporting States to
question the efficacy of international arbitral tribunals that generate
conflicting “decisional law” because of their adherence to an untested
assumption configured by broad content and a subjective (self-judging)
standard.
While the UNCTAD pronouncements specify a type of public
purpose doctrine believed to be required for the establishment of norms
that presumably are to govern the relationship between FDI and Host
States within a framework of substantial development, the effort appears
to be too partial in favor of Host States and prescribes drafting techniques
as a solution to a doctrinal and conceptual problem. The remedy does not
fit the ill.
F.
What Does it All Mean?
The Core Principles, NIGP, and the International Policy Options,
all purport to instruct States on domestic and international rule-making.
They thus must be accepted as probative evidence indicative of State
practice for purposes of determining whether the public purpose doctrine
as presented in the various UNCTAD pronouncements constitutes part of
customary international law. Such an affirmative finding also entails
acceptance of sustainable development as the broadest, economic-based
expression of the public purpose doctrine. The public purpose doctrine,
embracing this principle of sustainable development of recent vintage has
started to find a space in BITs.
This new development certainly emphasizes the importance of the
public purpose doctrine in both conventional and customary international
EAST\64724221. 3179
law, but also compounds the challenges endemic to a subjective standard
and an arguably boundless realm of application. Engrafting a sustainable
development content to the public purpose doctrine, as is plainly
established from the very embryonic development of this phenomenon in
BITs, merely has the practical—and, at times, intentional—effect of
transforming the right to regulate into an absolute right to regulate
irrespective of obligations to foreign investments/investors, so long as
such regulation is reasonably related to a State’s sustainable
development. Hence, the scope of the right to regulate in furtherance of
sustainable development also may be rephrased: a State’s right to regulate
may infringe upon foreign investments/investors where such regulation
relates to a financial or economic concern of the host country. While
public purpose in the form of sustainable development is laudable, a
sustainable development expression of the public purpose doctrine should
not be used as a precept adopted by a developing State in order to cure
what it perceived to be asymmetries between its obligation to protect
foreign investments/investors and the right to regulate.
1.
The South African Development Community Model
Bilateral Treaty Template
The insertion of the sustainable development iteration of the public
purpose doctrine into BITs arguably may have as much to do with
correcting the perceived asymmetry between home and host countries, as
it does with technically providing for a special category public purpose
exception. The South African Development Community (“SADC”) Model
Bilateral Investment Treaty Template provides further evidence of the role
of the public purpose doctrine in furtherance of sustainable development
in BITs,491 as well as of the use of this expression of the doctrine as a
means to correct to perceived inequitable asymmetries between capitalexporting and capital-importing States.492 This approach to the public
purpose doctrine and to BITs generally, may have the negative collateral
effect of placing broad economic burdens on investors who may be asked
to subsidize by way of relinquishing rights, Host State domestic policies.
The subsidization is a discernible trend that will require detailed analysis.
491
The expression of the fundamental iterations of the public purpose doctrine in BITs is
discussed infra at Chapter 4.
492
South African Development Community, SADC Model Bilateral Investment Treaty
Template with Commentary, July 2012, available at http://www.iisd.org/itn/wpcontent/uploads/2012/10/SADC-Model-BIT-Template-Final.pdf [hereinafter SADC
Model BIT Template]
EAST\64724221. 3180
The SADC Model BIT Template encompasses eight sections493
that most eloquently establish how the sustainable development expression
of the public purpose doctrine is used to: (i) correct perceived asymmetries
between States; (ii) amplify the domestic regulatory space of Home States;
(iii) reduce reasonable investor protection obligations on the part of Host
States; and (iv) help shift the economic burden of Host States to foreign
investors/investments.
The SADC Model BIT’s anatomy contains eight specific
references to the public purpose doctrines. Each of these references,
however, help establish that the doctrine is being used to do more than just
secure a reasonable space for the domestic exercise of regulatory authority
by Host States. Each of these references commands close scrutiny.
First, the very preamble of the SADC Model BIT bespeaks an
effort committed to interests of Host States that does not fully articulate
countervailing Home State concerns. Under the heading “Reaffirming” the
Preamble in pertinent part reads:
Reaffirming the right of the State Parties to regulate and to
introduce new measures relating to investments in their
territories in order to meet national policy objectives, and –
taking into account any asymmetries with respect to the
measures in place – the particular need of developing
countries to exercise this right.494
The purported reaffirmation itself is less than clear because there is no
evidence from which to infer or otherwise conclude that there existed any
“asymmetries with respect to the measures in place,” let alone specificity
as to both “asymmetries” and “measures.” Thus the preamble purports to
reaffirm a policy that is not at all identified with a similarly generic
reference to a measure, presumably within the context of a general need
pervading all “developing countries” (herein referred to as
“underdeveloped countries or underdeveloped States”) with respect to the
exercise of a right. This reaffirmation in the SADC Model BIT calls into
question the very propriety of the treaty’s nomenclature itself, as it is far
more than an investment treaty, and purports to have bilateral rights. The
reaffirmation only speaks to “underdeveloped countries” and references
“national policy objectives” within the context of Host States.
The Commentary to the Preamble corroborates a reading of the
Preamble as referencing a framework beyond attracting greater investment
and according such foreign direct investment additional levels of juridical
493
Such references appear in Articles 1, 6, 13, 20, 22, and 25 as well as in the preamble.
Id.
494
Id. at 5.
EAST\64724221. 3181
protection so as to render the effort appetizing to capital-exporting States.
Specifically, the Commentary asserts that a preamble to a bilateral
investment treaty should be sufficiently broad so as to avert the immediate
conclusion that presumptions favoring investor protection mostly or
exclusively underlie a BIT. The most relevant language in this connection
reads:
In these circumstances [where an arbitral tribunal seeks
interpretive help by consulting the preamble of a BIT],
there have been several instances where arbitral tribunals
have examined a preamble of a given treaty and found only
references to the promotion of investment and the provision
of investor rights under the treaty. As a result, the preamble
has been held to establish a presumption that the sole
purpose of the treaty is the protection of the investor in
order, presumably, to attract higher levels of investment.
This has led to several instances where arbitrators have
specifically held that this creates a presumption in favour of
broader over narrower rights for the investor, fewer and
more limited rights for government regulatory activity in
relation to an investment, and an overall presumption of
investor-friendly interpretations.
Although there are several arbitrations that have rejected
this approach and it has been the subject of much academic
and other professional criticism, it continues to be used in
some instances. This includes in decisions made as recently
as in 2010 and 2011. As a result, the preamble set out
above is crafted to:
Reflect development goals of SADC Member States, both in general terms
and specifically in relation to FDI.
Be balanced, as between development objectives and investor interests, so
as to preclude unintended expansive interpretation of substantive
provisions in favour of investors on the basis of the intent to protect
investors expressed in the preamble, as seen in several arbitrations.
Be focused on key issues and not become a listing of all of the issues
reflected in the final text.
The paragraph on the right to regulate and the recognition
of asymmetry issues, with modification for the broader
subject matter here, is drawn from the World Trade
Organization’s (WTO) General Agreement on Trade in
Services (GATS), which of course has all developed
countries as State Parties. This should enhance its
EAST\64724221. 3182
acceptability in a north-south negotiating context. At least
in some measure, asymmetry is part of the policy mix for
developing States’ development policy building. This
preamble recognizes such asymmetries as part of this mix
for international investment law purposes, which overlaps
with Mode 3 of the GATS. Hence there is a strong
correlation between the two, and the proposed text can be
seen as derived from the already agreed upon GATS.495
Even though the Commentary references the aspiration of obtaining a
balance “as between development objectives and investor interests,”496 the
objective is quite narrow and only addresses possible prejudice as to Host
States only. Nowhere is there mention of the need to ensure that “the right
to regulate” is confined to the promulgation of measures that comport with
the expectation of both parties to a bilateral investment treaty. The
Commentary travels on the presumption that frustrated expectations and
asymmetrical issues only prejudice and concern capital-importing
countries. While it is true that there likely are instances where a
developing country may have negotiated less than favorable terms in
becoming a signatory to a treaty with a capital-exporting State, the
assumption that all or most underdeveloped countries are disadvantaged
and prejudiced because of asymmetrical issues and overly expansive
foreign investment protection rights finds no foundation in theory or
fact.497
The connection between the recognition that asymmetry issues
with the WTO GATS, notwithstanding the qualifying clause, “with
modification for the broader subject matter here,”498 is of some concern.
The scope and issues attendant to the WTO GATS pertaining to
international trade law are materially distinct from those topics within the
ambit of international investment law.499
495
Id. at 5-6.
496
Id.
497
To the contrary, in 2011 and 2012 ICSID upheld investors claims either in whole or in
part 46% and 63% of the time, respectively. https://icsid.worldbank.org/ICSID/Index.jsp
(last visited April 28, 2013).
498
SADC Model BIT Template, supra note 494, at 6.
499
Supra note 128 & accompanying text.
EAST\64724221. 3183
Moreover, the SADC Model BIT also assumes that to the extent
that BITs do carry a “presumption of investor-friendly interpretations,”
such a presumption is not in a Host State’s best interest.500
Article 1 of the SADC Model BIT qualifies the principal objective
of the BIT as encouraging an increase in FDI that will “[support] the
sustainable development of each Party.”501 The Commentary to Article 1
provides that part of the intent behind the provision is to emphasize the
connection between FDI and the promotion of sustainable development. It
specifically States that this connection “between foreign direct investment
(FDI) and the promotion of sustainable development” is intended to stress
that FDI is not “an end in itself.”502
The proposed objective, as drafted, raises exquisitely complex
challenges. Is “sustainable development” much like the public purpose
doctrine, a specifically defined principle of law? If so, where? Is
sustainable development an absolute public purpose category, or one that
500
The scholarship asserting the proposition that FDI is directly proportional to the
presumption that foreign investment enjoys juridical protection, or that BITs are subject
to a “presumption of investor-friendly interpretations,” are vast. See, e.g., Leon E.
Trakman, The ICSID Under Siege, 45 CORNELL INT’L L.J. 603, 608 (2012) (“The signing
of bilateral investment agreements incorporating investor-State arbitration is therefore not
simply about developed States imposing their will on developing States. Rather, these
agreements are strategically important and States elect among them in a calculated
manner according to the perceived benefits arising from prospective investment flows.”)
(citation omitted).
501
Article 1 States:
The main objective of this Agreement is to encourage an increase
investments [between investors of one State Party into the territory of
the other State Party] that support the sustainable development of each
Party, and in particular the Host State where an investment is to be
located.
SADC Model BIT Template, supra note 494, at 8 (emphasis supplied).
502
The Commentary States:
Many treaties include an objective article to highlight, in a succinct
manner within the substantive text, the treaty’s main goal. This gives
added weight to the objective as an interpretational guide, beyond that
which is normally attributed to the preamble. The link between foreign
direct investment (FDI) and the promotion of sustainable development
is recognized in the Finance and Investment Protocol (FIP) and other
SADC instruments. It is used here to support the key objective of the
SADC Member States: for FDI to contribute to the development
objectives of each State and the region as a whole, rather than simply
being an end in itself.
Id.
EAST\64724221. 3184
is contingent on the development needs of particular States? If the latter, is
a prospective investor charged with knowledge of a Host State’s specific
sustainable development needs as a matter of law? Assuming that an
investor is charged with knowledge of the sustainable development
content of the public purpose doctrine as expressed in Article 1 of the
SADC BIT, is it conceptually or doctrinally possible then for the
sustainable development expression of the public purpose doctrine to be
self-judging, i.e., subjective, on the part of the invoking State?
Without pristine answers to these queries it is unlikely that Article
1 of the SADC Model BIT will gain traction with the universe of
sophisticated FDI prospective investors who are sensitive to the delicate
balance between a State’s exercise of sovereignty through regulatory
enactments within its domestic space and the equally important and
demanding obligation to protect foreign investor/investments.
The third material reference to the public purpose doctrine in the
SADC Model BIT appears in Article 6 within the context of an
expropriation provision that presents two options as to the compensation
obligation. In contrast with Article 1110 of the NAFTA, Article 6.1 of the
SADC Model BIT omits any reference to non-discriminatory treatment
with respect to the four orthodox exception elements rendering the
expropriation legal and charging the State only with an obligation to pay
some form of compensation, depending on the applicable rubric.503
Therefore, pursuant to this proposed expropriation exception,
discriminatory regulation on the part of a Host State is countenanced
where the taking is discriminatory but (i) in the public interest, (ii) in
keeping with due process of law, and (iii) where fair and adequate
compensation is tendered within a reasonable period of time.504 This
503
Section 6.1 reads: “A State Party shall not directly or indirectly nationalize or
expropriate investments in its territory except: (a) in the public interest; (b) in accordance
with due process of law; and (c) on payment of fair and adequate compensation within a
reasonable period of time.” Id. at 24. Cf. NAFTA, supra note 18, art. 1110.
504
However, it should be noted that Subsection 6.7. of Article 6 does seem to suggest that
a discriminatory indirect expropriation under the Model BIT may trigger a compensation
standard more favorable to a foreign investor than the “fair and adequate” criteria,
providing: “A [non-discriminatory] measure of a State Party that is designed and applied
to protect or enhance legitimate public welfare objectives, such as public health, safety
and the environment, does not constitute an indirect expropriation under this Agreement.”
SADC Model BIT Template, supra note 494, at 26 (brackets in original).
The commentary to paragraph 6.7 suggests an intent on the part of the drafters to
foreclose Home State investors from asserting that non-discriminatory regulatory
enactments constitute expropriations within the scope of the Model BIT:
The exclusion for regulatory measures in paragraph 6.7 is specific and
clear, rather than leaving open possibilities for investors to argue
otherwise. This is the traditional customary international law approach,
EAST\64724221. 3185
proposition places still greater reliance on the public purpose element of
the provision. The tolerance of a discriminatory nationalization or
expropriation that is either direct or indirect evinces an expansive
domestic regulatory space and arguably would command more than a
reasonable showing of public purpose in connection with the taking. This
model provision invariably prompts the question as to whether different
showings of public purpose are necessary and warranted depending upon
the number of elements required in order to constitute a legal and
legitimate taking.
Section 6.1 is devoid of the “tantamount” or “equivalent to an
expropriation” language present in Article 1110 of the NAFTA.505 Thus,
the provision arguably forecloses claims for expropriation arising from a
series of regulatory enactments which, when taken together, render an
investment only nominally valuable or altogether lacking in commercial
purpose. This construction also materially amplifies the domestic
regulatory space of Host States while weakening Host State obligations to
protect foreign investment.
This proposition is quite extraordinary. Viewed from this
perspective, the workings of Section 6.1 would render juridically sound a
series of regulatory acts undertaken within a fixed time frame that are
discriminatory in nature and have the direct and proximate consequence of
rendering a foreign investment commercially unviable so long as such acts
comport with the three other delineated strictures. The proposition also
invites the additional inquiry as to whether each such discreet
discriminatory act must be in and of itself subject to a public interest
requirement, or does such requirement attach only to the totality of the
subject regulatory actions within the context of their cumulative effect?
The answer to this inquiry, in turn, would presumably dictate the content
of the public purpose doctrine against which any such alleged taking must
be analyzed.
drawn from the notion that ‘police powers’ measures are not, by
definition, acts of expropriation. The text is inspired by the COMESA
CCIA and ASEAN texts. The 1990s and early 2000s’ texts did not
include such provisions, but these types of clauses are becoming
increasingly common and should be made clear and apparent in the
treaty text. Indeed, it is likely that a failure to include such a provision
now would lead to the assumption that such a clear exclusion was not
meant to be included and create the risk that a tribunal will hold that by
not excluding regulatory measures the parties meant to include them
within the scope of the expropriation article.
Id.
505
See NAFTA, supra note 18, art. 1110.
EAST\64724221. 3186
The meaningful reliance of the public purpose doctrine within the
framework of the SADC Model BIT generally, and in particular the
workings of Subsection 6.1 on expropriation, is emphasized because of the
very unique relationship between the public purpose doctrine and the
methodology for compensating foreign investors under this provision.
Two options are articulated with respect to the valuation of a foreign
investment that has been nationalized or expropriated within the meaning
of Article 6. The first option places the public purpose doctrine at the very
center of a valuation analysis that favors the interests of Host States, twice
appealing to the doctrine. This single sentence valuation tenet renders the
term “fair market value” as only one of numerous factors to be considered:
6.2.
Option 1: The assessment of fair and adequate
compensation shall be based on an equitable balance
between the public interest and interest of those affected,
having regard for all relevant circumstances and taking into
account the current and past use of the property, the history
of its acquisition, the fair market value of the property, the
purpose of the expropriation, the extent of previous profit
made by the foreign investor through the investment, and
the duration of the investment.506
This first option fails to explain how it is that the public interest incident to
the expropriation is to be weighed or balanced against the “interest of
those affected.” Similarly, it is less than clear how “the purpose of the
expropriation” is to be weighed or considered with respect to the “fair
market value of the property.” Equally obscured is the relationship
between profits that a foreign investor realized from the investment, and
the duration of the investment. What does stand out as clear, however, is
that the public purpose component of the proposed assessment of value
methodology enunciated in Option 1 is instrumental in diminishing “fair
market value of the property” and transforming it into “fair and adequate
compensation” pursuant to which fair market value is depreciated by
considering the alleged public purpose component of the expropriation.
The second option actually suggests that “fair market value” of the
subject property immediately prior to the expropriation is to be used as the
operative standard, except in cases where it is deemed more “appropriate”
to assess fair and adequate compensation instead of fair market value. In
such cases, the public purpose doctrine again is called upon to form part of
a species of a proportionality test pursuant to which fair and adequate
compensation is arrived at by balancing public interest against the
506
SADC Model BIT Template, supra note 494, at 24 (emphasis supplied).
EAST\64724221. 3187
interests of those prejudiced. This part of the proportionality test is
consonant with the compensation analysis contained in Option 1.507
The importation of the public purpose doctrine into expropriation
damages analysis, creates uncertainty and expands the role of the doctrine
beyond considerations only pertaining to liability.
The most balanced compensation proposal that would best appear
to harmonize the interests of home and Host States is Option 3. Partially
equitable in nature, the provision is unique in its absence of any mention
of the public purpose doctrine:
6.2.
Option 3: Fair and adequate compensation shall be
assessed in relation to the fair market value of the
expropriated investment immediately before the
expropriation took place (“date of expropriation”) and not
reflect any change in value occurring because the intended
expropriation had become known earlier. 508
This compromise position retains the “fair and adequate” compensation
element, which is meaningfully removed from actual fair market value,
fair market value, or actual value, while still using fair market value as of
a fixed date as a point of departure and standard. Moreover, by discarding
consideration of the depreciation that the investment may have suffered
(and in many cases indeed did experience) as a result of predicate acts to
the expropriation or actions taken prior to the actual taking,509 orthodox
507
Subsection 6.2, Option 2 States:
Fair and adequate compensation shall normally be assessed in relation
to the fair market value of the expropriated investment immediately
before the expropriation took place (“date of expropriation”) and shall
not reflect any change in value occurring because the intended
expropriation had become known earlier. However, where appropriate,
the assessment of fair and adequate compensation shall be based on an
equitable balance between public interest and interest of those affected,
having regard for all relevant circumstances and taking account of: the
current and past use of the property, the history of its acquisition, the
fair market value of the investment, the purpose of the expropriation,
the extent of previous profit made by the foreign investor through the
investment, and the duration of the investment.
Id.(emphasis supplied).
508
Id. at 25.
509
It is common for investments to suffer material depreciation in value arising from the
pre-expropriation process. Quite often, by way of example, public pronouncements
precede actual regulatory enactments. These publications, usually industry-wide and
available to the relevant universe of commercial interests, have the effect of diminishing
investment value. In a non-expropriation context, such depreciation naturally would be
EAST\64724221. 3188
valuation methodologies510 are being discarded to ensure that the valuation
methodology comports with an expropriation framework that is somewhat
severed from this sphere of commercial or juridical compensation
paradigms.511
considered in any appraisal or valuation of an asset. In fact, one tribunal has awarded
compensation for wrongful acts occurring prior to BIT coverage, and noted “the project
was by then already severely damaged from earlier events for which the Respondent
bears no liability under the BITs; and it remained subject to several commercial, legal
and political risks.” Gemplus, S.A., SLP, S.A. and Gemplus Industrial, S.A. de C.V. v.
United Mexican States, ICSID Case No. ARB(AF)/04/3 & ARB(AF)/04/4, Award Part
XIII
¶
96
(Jun.
16,
2010),
http://italaw.com/sites/default/files/casedocuments/ita0357.pdf.
510
See generally Manuel A. Abdala & Pablo T. Spiller, Damage Valuation of Indirect
Expropriation in International Arbitration Cases, 14 AM. REV. INT’L ARB. 447, 454
(2003) (delineating the orthodox valuation methods for assets damaged in an
expropriation).
511
Damage theories of restitution or that otherwise seek to render an aggrieved party
whole, i.e. either placed in the same position that the party was in prior to the alleged
prejudice or enjoying the status that the prejudiced party would have enjoyed had the
non-compliant party performed the terms of a contract finding no place in the
compensation scheme of public international law with respect to expropriation. There is
no explanation for not awarding an injured party the depreciation caused by the acts or
omissions of a Host State during a fixed and identifiable time frame leading up to the
expropriation, which constituted part of the subject of regulatory takings, other than the
proposition that (i) the injured party assumed the risk of a lawful expropriation and
therefore should not be made whole and (ii) obligating States to tender full “fair market
value” rather than “fair and adequate compensation” would be tantamount to imposing a
fine on the Host State merely for exercising its duty to regulate in furtherance of a public
purpose. See, e.g., LG&E Energy Corp., LG&E Capital Corp. and LG&E International
Inc. v. Argentine Republic, ICSID Case No. ARB/02/1, Award ¶¶ 29-53 (Jul. 25, 2007),
http://italaw.com/sites/default/files/case-documents/ita0462.pdf (discussing the proper
method for compensation, whether it be restitution, fair market value, or fair and
adequate).
Article 1110(2) of the NAFTA excludes from the compensatory scheme of takings
depreciation or damage occurring prior to the actual act depriving the owner of its
investment, much like Option 3, but in contrast with Option 3, sets forth a “fair market
value” standard:
Art. 1110(2): Compensation shall be equivalent to the fair market value
of the expropriated investment immediately before the expropriation
took place (“date of expropriation”), and shall not reflect any change in
value occurring because the intended expropriation had become known
earlier. Valuation criteria shall include going concern value, asset value
including declared tax value of tangible property, and other criteria, as
appropriate, to determine fair market value.
NAFTA, supra note 18, art. 1110 ¶ 2.
EAST\64724221. 3189
Yet another sustainable development expression of the public
purpose doctrine within the SADC Model BIT is contained in Article 13,
entitled “Environmental and Social Impact Assessment.” This provision
prescribes a two-pronged pre-entry requirement for investors. One
requirement entails investor compliance with environmental green criteria
and assessment processes relevant to the investment at issue in
conformance with the laws of the host and Home States, as well as the
International Finance Corporation’s performance standards on
Environmental and Social Impact Assessment, “whichever is more
rigorous in relation to the investment in question.”512 The second part of
the requirement concerns a social assessment subject to the same strictures
as the environmental study.513
The scope of these impact assessments is to include both static and
progressive analyses on the human rights “of the persons in the areas
potentially impacted by the investment.”514 Article 13 charges investors
with the obligation of rendering the environmental and social impact
assessments public, including on the Internet,515 and available to local
communities or other sectors that may be potentially affected by the
investment “in an effective and sufficiently timely manner so as to allow
comments to be made to the investor, investment, and/or government prior
to the completion of the Host State processes for establishing an
investment.”516 The rigors of transparency and lead time engraft material
preconditions to investors/investments subject to the SADC Model BIT’s
progenies. Even though this precondition technically applies both to home
and Host States, as the substantive law on the relevant social and
environmental issues that are the subject of the assessments pertaining to
both jurisdictions, as a matter of practical implementation the burden of
512
SADC Model BIT Template, supra note 494, at 34.
513
Article 13.1. provides:
Investors or their Investments shall comply with environmental and
social assessment screening criteria and assessment processes
applicable to their proposed investments prior to their establishment, as
required by the laws of the Host State for such an investment [[or the
laws of the Home State for such an investment][or the International
Finance Corporation’s performance standards on Environmental and
Social Impact Assessment], whichever is more rigorous in relation to
the Investment in question.]
Id. at 34 (brackets in original).
514
Id.
515
See id. (Art. 13.13).
516
Id. at 34.
EAST\64724221. 3190
the requirement will have its greatest effect on Home States. It will
therefore increase foreign investors’ participation in and financial
contribution to the implementation of Host State domestic policies, which
has been identified as a salient feature of the sustainable development
expression of the public purpose doctrine.517 The Environmental Impact
Assessment pursuant to Article 13 must be consonant with the
Precautionary Principle.518
The sixth sustainable development expression of the public
purpose doctrine in the SADC Model BIT appears under Article 20
(“Right of States to Regulate”).519 The drafters identify the right of States
to regulate in conformance with: (i) principles of sustainable development;
(ii) legitimate social objectives; and (iii) economic policy goals as an
obligation of Host States arising from customary international law.520 In
fact, the “right to regulate” as framed in Article 20 is further identified as
falling “within a balance of the rights and obligations of Investors and
517
See supra at Chapter 2.E(5).
518
Principle 15 of the United Nations Rio Declaration on Environment and Development
defines the precautionary principle, which is followed by the majority of States:
In order to protect the environment, the precautionary approach shall
be widely applied by States according to their capabilities. Where
there are threats of serious irreversible damage, lack of full scientific
certainty shall not be used as a reason for postponing cost-effective
measures to prevent environmental degradation.
United Nations Conference on Environment & Development, Rio de Janeiro, Braz., June
3-14, 1992, Rio Declaration on Environment & Development, U.N.
Doc.A/CONF.151/26/Rev. 1 (Vol. I), Annex I (Aug. 12, 1992). Under such guidance,
Paragraph 13.4 of Article 13 reads:
Investors, their investments and the Host State authorities shall apply
the precautionary principle to their environmental impact assessment
and to decisions taken in relation to a proposed investment, including
any necessary mitigating or alternative approaches to the investment, or
precluding the investment if necessary. The application of the
precautionary principle by investors and investments shall be described
in the environment impact assessment.
SADC Model BIT Template, supra note 494, at 34 (internal citations omitted).
519
Id. at 39.
520
Paragraph 20.1 of Article 20 provides:
In accordance with customary international law and other general
principles of international law, the Host State has the right to take
regulatory or other measures to ensure that development in its territory
is consistent with the goals and principles of sustainable development,
and with other legitimate social and economic policy objectives.
Id.
EAST\64724221. 3191
Investments and Host States, as set out in [the Model BIT].”521
Furthermore, non-discriminatory acts undertaken by Host States in
furtherance of compliance with other treaty obligations also are to be
construed as part of a “right to regulate,” notwithstanding the burdens that
such compliance may place on foreign investment.522
Article 20 identifies a right to regulate as having a normative
foundation in the sustainable development expression of the public
purpose doctrine. Besides requiring such measures be “nondiscriminatory” and in accordance with “expressly Stated” “exception[s]
to the obligations of this Agreement,”523 the right to regulate is viewed as
an expansive prerogative of Host States that appears to be unbridled as to
scope. Furthermore, it does not take into consideration any countervailing
interests on the part of Home States and investors. The Commentary to
Article 20.2 confirms this construction of the right to regulate principle.
The drafters viewed the Article 20 “right to regulate” language as ensuring
an understanding that the Model BIT’s progeny are not construed as
wresting from Host States any pre-treaty rights,524 and to present the
agreements based on the Model BIT as providing for more than only
investor rights.525 The right to regulate presented under Article 20 is not
521
Id. at 40.
522
Id. (Art. 20.3).
523
Id. (Art. 20.2).
524
This intent is somewhat uncommon as it is fundamental that treaties are the means
pursuant to which States yield sovereignty as a concession to the attainment of an
international objective concerning one or more States.
525
The commentary in its totality provides:
This article confirms that the treaty does not alter the Host State’s basic
right to regulate, but without eliminating all the effects of the investor
protections. [Here, “the effects of the investor protections” refers to
effects with respect to the Host State, and not to the Investor or the
Home State.] It should be read with more specific articles that enable
performance requirements to be imposed, and carefully define the nondiscrimination and expropriation rules, for example. All of these
provisions are intended to work together.
The broader goal is reStated in paragraph 20.2, again ensuring that
some of the predilections of arbitrators to view investment treaties
purely as investor rights would be untenable under the present
approach. In view of the broad obligations in BITs, it is useful to
reaffirm the Host State’s right to regulate investments in the public
interest.
Id. at 40 (bracket language supplied).
EAST\64724221. 3192
even contingent upon a “subjective necessity” requirement. It does
subordinate all investor rights to non-discriminatory regulatory measures
that a Host State may undertake without consequence to the Host State
despite prejudice to the Home State’s foreign investor.
Whether the right to development as described in Article 20 at all
exists as part of customary international law is less than clear.526
Embedded in the SADC Model BIT, this basic assumption, without more,
is likely to work against the very policies that the BIT purports to protect
and to promote. At some fundamental level it is a challenge to conceive of
a negotiated treaty that does not cause its signatories to assume burdens
and obligations in the form of conceded rights to regulate. To the extent
that the SADC Model BIT drafters understood that the effects of investor
protections under BITs had a negative effect on Host States because
parties and arbitrators “exploited ambiguities” in the standards of
protection against the interests of Host States,527 specifying the content
and scope of standards of protection within the BIT is a more efficient
course of conduct than a right to regulate that is boundless and, therefore,
likely to discourage foreign investment.
The final and seventh pronouncement of the public purpose
doctrine is contained in Article 25 entitled “Exceptions.”528 This article
introduces no less than four standards in the application of seven
expressions of the public purpose doctrine.529 The proposed exceptions
526
The right does appear in the African Charter of Human and Peoples’ Rights, as
discussed in Chapter 3. See African Charter, supra note 399, art. 21.
527
SADC Model BIT Template, supra note 494, at 46-47 (providing rationale for detailed
exceptions).
528
Id. at 46.
529
Article 25 expressly addresses the following seven public purpose categories all
within the context of sustainable development: (i) public morals, (ii) public safety, (iii)
the protection of human, animal, or plant life or health, (iv) the conservation of living or
non-living exhaustible natural resources, (v) protection of the environment, (vi) fiscal and
monetary financial sums, and (vii) security. The relevant paragraphs in Article 25
provide:
25.1. [Subject to the requirement that such measures are not applied in
a manner that would constitute a means of arbitrary or
unjustifiable discrimination pursuant to Article [4]] Nothing in
this Agreement shall be construed to oblige a State Party to pay
compensation for adopting or enforcing measures taken in good
faith and designed and applied:
(a) to protect public morals and safety;
(b) to protect human, animal or plant life or health;
(c) for the conservation of living or non-living exhaustible
natural resources; and
(d) to protect the environment.
EAST\64724221. 3193
framework contemplates that as a matter of post-entry investor rights, an
investor shall have no rights where a regulatory measure is enacted
pursuant to a non-arbitrary discriminatory measure or a justifiable
regulatory act.530 Such deliberate discrimination or “justifiable
discrimination” in the way of regulatory measures shall be deemed to
constitute an exception when purportedly taken in furtherance of the
public purpose categories enunciated in Article 25.
Paragraph 25.1 exonerates a State from any obligation to tender
compensation so long as such measures are “taken in good faith” and
“designed and applied”531 to the public categories enunciated in
subparagraphs (a) through (d). This postulate, under the joint banner of
good faith and the public purpose doctrine, amplifies the domestic
regulatory space beyond what may be the reasonable expectations of
investors from capital-exporting States. It can be synthesized as a
subjective standard on the part of the State invoking the exception; this
standard in turn rests upon a principle of good faith that is also selfjudging (subjective) and thus lacking universal content.
As constructed, the limiting factor, i.e., the most closely objective
elements contained in Paragraph 25.1(a)-(d), are the public purpose
25.2. For greater certainty, nothing in this Agreement shall be
construed to oblige a State Party to pay compensation if it
adopts or maintains reasonable measures for prudential reasons,
such as:
(a) the protection of investors, depositors, financial market
participants, policy-holders, policy-claimants, or persons to
whom a fiduciary duty is owed by a financial institution;
(b) the maintenance of the safety, soundness, integrity, or
financial responsibility of financial institutions; and
(c) ensuring the integrity and stability of a State Party’s
financial system.
25.5. Nothing in this Agreement shall apply to a State Party’s
measures that it considers necessary for the fulfillment of its
obligations with respect to the maintenance or restoration of
international peace or security, or the protection of its national
security interests.
25.6 Nothing in this Agreement requires a State Party to furnish or
allow access to any information, the disclosure of which it
determines to be contrary to its national security interests
Id. (emphasis supplied; brackets in original).
530
Id. The first sentence of paragraph 25.4 refers to “arbitrary or unjustifiable
discrimination pursuant to Article 4.”
531
Id.
EAST\64724221. 3194
categories identified in these subparagraphs. They in turn, would need to
be vested with some element of necessity if they are to serve any type of
limiting, categorical function.
Two additional standards are introduced in Paragraph 25.2: (i)
reasonableness, and (ii) prudential.532 That paragraph provides that a State
party may enact or maintain regulatory measures without penalty of
having to pay compensation so long as the measures are “reasonable” and
used or intended “for prudential reasons.”533 Such “prudential reasons”
include534 the protection of fiscal and monetary policies, including
investors, depositors, financial market participants, etc., as well as
measures relating to the State’s financial system.535 A “reasonableness”
standard by which the adoption or maintenance of regulatory acts are to be
measured is simply too broad and suffers from vagueness. Absent an
aberrant conception, most, if not all, duly enacted regulatory measures will
meet a reasonableness standard. Pursuant to this criteria, the challenged
measure would need to be irrational or otherwise unsustainable under any
rational theory of equity, fact, or law.536
532
Id. (Art. 25.2).
533
Id.
534
The term “include” is here used because the paragraph indicates the two categories
given as examples are not exhaustive, relying on the term “such as.” Id.
535
Paragraph 25.2 States:
For greater certainty, nothing in this Agreement shall be construed to
oblige a State Party to pay compensation if it adopts or maintains
reasonable measures for prudential reasons, such as:
(a)
(b)
(c)
the protection of investors, depositors, financial market
participants, policy-holders, policy-claimants, or persons
to whom a fiduciary duty is owed by a financial
institution;
the maintenance of the safety, soundness, integrity, or
financial responsibility of financial institutions; and
ensuring the integrity and stability of a State Party’s financial
system.
Id.(emphasis supplied).
536
Most enactments found to violate standards of treaty protection are rational in and of
themselves and are frequently enacted by members of the international community. The
reasonableness of a measure is qualitatively separate and distinct from the effect that it
may have on a foreign investment/investor pursuant to a treaty protection obligation.
Accordingly, the “reasonable measure” criteria asserted in the SADC Model BIT does
not constitute a meaningful restriction or qualification as to the form or substance of the
measure.
EAST\64724221. 3195
The term prudential reasons is also laced with vagueness and an
over inclusive scope. This term is also problematic because, despite its
“term of art” status as confirmed by the examples listed, the application
and effects of these principles at a microeconomic level warrants more
specific criteria or reference to an international NGO as an enabling check
and balance.537
Only measures that cannot be justified on rational grounds
purportedly enacted for non-prudential reasons that do not at all touch or
concern the categories enunciated in subparagraph (a)-(c) would give rise
to an actionable claim against a State party under the SADC Model BIT.
Article 25 precisely emphasizes the very subjective standard that has been
identified as a lethal debility of the sustainable development expression of
the public purpose doctrine and of the public purpose doctrine more
generally. The commentary to Paragraph 25.1, however, emphasizes the
exculpatory effects of the self-judging principle of good faith in Paragraph
25.1, the scope of which is also further unduly amplified because of the
wholesale importation of international trade law exceptions drawn from
Article XX of the GATT.538
The Article 25 “Exceptions” represent an amalgamation of
investment law, trade law, and incorporation of the sustainable
development of the expression of the public purpose doctrine. It vastly
537
SADC Model BIT Template, supra note 494, at 46.
538
The commentary to paragraph 25.1 in pertinent part provides:
This article combines a number of exceptions, issues seen in various
regional and bilateral agreements. Each is considered in order.
Paragraph 25.1 is drawn from Article XX of the GATT, and is also
reflected in the COMESA CCIA and other bilateral agreements.
However, it is more specifically drafted to make clear that no
compensation is required to be paid to an investor for the types of
measures set out therein as long as they are taken in good faith. This
avoids a situation, for example, where a measure is ‘made legal’ by
virtue of paying compensation. Hence the test is not one being a
breach of the treaty or not, but a more refined and specific Statement
that the covered measure simply does not require compensation when
taken in a bona fide manner.
Paragraph 25.2 relates to measures to ensure the stability and integrity
of the financial system. The notion of prudential measures in this text is
intended to relate to the technical use of that term in relation to the
financial sector only. It may be seen as complimentary to the provision
on safeguards measures enabling certain limitations on the export of
assets by an investor.
Id. at 46-47.
EAST\64724221. 3196
amplifies the Host State’s domestic regulatory space without according
any concession to the Home State interest in protecting investors by dint
of obligations contained in treaty-based protection standards. To the
contrary, the spirit of the SADC Model BIT is one that seeks to diminish
investor protection in order to attract greater FDI as the principal objective
of the treaty. This is accomplished by addressing treaty principles in ways
that may enable Host States to remedy existing asymmetries. Thus, the
very fundamental nature of the BIT is transformed into a more general and
far-reaching instrument aimed at restructuring the anatomy of financial
relationships between and among States. This overarching aspiration will
also be encountered in analyzing the relationship between the public
purpose doctrine and international human rights law.
The protagonistic role of the public purpose doctrine in the form of
the principle of sustainable development throughout the BIT is laudable as
a policy objective, but technically deficient as presented because of its
lack of bilateralism and rudimentary symmetry. Based on the literal
language of BIT provisions in the SADC Model BIT, Home State
investors are asked to give up protection rights on investments in order to
help finance internal Host State legislation described as “necessary” to the
development of a particular State. The net effect of the Model BIT’s
workings is to render it unsignable because of its overwhelming penchant
favoring Host States and adherence to the proposition that the BIT does
not at all represent any limited relinquishment of sovereignty on the part
of Home States. These challenges are further exacerbated by the
incorporation of the legacy public purpose doctrine together with an
additional emphasis on Host State self-judging criteria. Instead of
furthering the sustainable development goals that the Model BIT quite
laudably articulates, and enhancing FDI, the BIT’s framework offers little
incentive to investors and protection transparency as to their investments.
Much of these shortcomings, however, can be adjusted by using a public
purpose doctrine that is vested with substantive content, limited by
definition, applied through a proportionality principle, and rooted in
objective standard.
2.
The Sustainable Development Expression of the Public
Purpose Doctrine in BITs
Notwithstanding the UNCTAD 2012 Report539 and the SADC
Model BIT,540 the sustainable development expression of the public
purpose doctrine remains as opaque as the legacy iteration of the public
purpose doctrine itself. The sustainable development “principle” is
nowhere defined conceptually and doctrinally in legislation, decisional
539
Discussed supra at Chapter 2.E(4).
540
Discussed supra at Chapter 2.F(1).
EAST\64724221. 3197
law, academic writings, or international instruments.541 It is legitimate to
inquire, “what is sustainable development?” Even though this question
may not be susceptible to a comprehensive answer, it does lead to a more
modest and attainable inquiry. What is the relationship between the
sustainable development doctrine as expressed in the SADC Model BIT
and actual BITs in force? Are the broad policy objectives embodied in the
UNCTAD 2012 Report and the SADC Model BIT discernible in actual,
negotiated BITs that do not purport to be aspirational paragons? Has the
sustainable development expression of the public purpose doctrine as a
principle to be applied in correcting asymmetries in the trade law and
investment law relationship between States found a voice in BITs? Lastly,
is there a place for the sustainable development expression of the public
purpose doctrine in BITs between industrialized States?
As part of the effort to identify and explore the contours of the
public purpose doctrine in customary international law, a non-random
sample of exactly 300 BITs542 were selected (the “Sample BITs”).543 This
set of BITs yielded only six BITs544 that purported to incorporate
541
Here a difference is being drawn between reference to our mention of sustainable
development and authoritative writings that define sustainable development in such a way
that references to the term trigger a succinct and uniform conceptual category that has
been embraced by a significant number of States comprising the international
community.
542
See infra Annex II.
543
This terminology, “Sample BITs,” is used throughout.
544
The following six BITs from the Sample BITs contained reference to the sustainable
development expression of the public purpose doctrine:
(i)
Agreement Between the Government of Canada and the
Government of the People’s Republic of China for the Promotion and
Reciprocal Protection of Investments, Can.-China, Sept. 9, 2012,
http://unctad.org/sections/dite/iia/docs/bits/canada_china.pdf
[hereinafter Canada-China BIT];
(ii)
Agreement Between Canada and the Republic of Peru for the
Promotion and Protection of Investments, Can.-Peru, Nov. 14, 2006,
http://unctad.org/sections/dite/iia/docs/bits/canada_peru.pdf
[hereinafter Canada-Peru BIT];
(iii)
Agreement Between Japan and the Republic of Colombia for
the Liberalization, Promotion and Protection of Investments, Jap.-Col.,
Sept.
12,
2011,
http://unctad.org/sections/dite/iia/docs/bits/Japan_colombia%20BIT.pd
f [hereinafter Colombia-Japan BIT];
(iv)
Agreement Between the Government of Japan and the
Government of the Independent State of Papua New Guinea for the
Promotion and Protection of Investment, Jap.-Pap. New Guin., Apr. 26,
EAST\64724221. 3198
sustainable development as a principle pervading the treaty.545 These six
BITs, all executed between 2006 and 2012, suggest that the process of
negotiation considerably curtails the scope of the sustainable development
policy.546 The rigors of the interState treaty negotiating process
notwithstanding, sustainable development contributes to yet a greater
broadening of the legacy public purpose doctrine. Both the effects of the
rigors of interState treaty negotiation and the amplification of the legacy
doctrine merit scrutiny as they manifest themselves in these five BITs.
a.
The Canada - China BIT
The Agreement between Canada and China for the Promotion and
Protection of Investments (“Canada-China BIT”) mentions sustainable
development in its very first sentence:
RECOGNIZING the need to promote investment based on
the principles of sustainable development.547
Other than this fleeting reference, the term “sustainable development”
nowhere appears in the BIT. There is no definition or explanation of the
term anywhere in the text. The BIT also is devoid of reference to external
sources that may help define the term. Notably, the “Exceptions” Article
2011,
http://unctad.org/sections/dite/iia/docs/bits/JapanPNG%20BIT%2026042011.pdf [hereinafter Japan-Papua New Guinea
BIT]; and
(v)
Agreement Between Government of the Republic of Croatia
and the Government of the Republic of Azerbaijan on the Promotion
and Reciprocal Protection of Investments, Cro.-Azer., Nov. 2, 2007,
http://unctad.org/sections/dite/iia/docs/bits/Croatia_Azerbaijan.pdf
[hereinafter Croatia-Azerbaijan BIT].
(vi)
Agreement Between the Government of Canada and the
Hashemite Kingdom of Jordan for the Promotion and Protection of
Investments,
Can.-Jor.,
Jun.
28,
2009,
http://www.unctad.org/sections/dite/iia/docs/bits/Canada-JordanFIPAeng.pdf [hereinafter Canada-Jordan BIT].
545
These six BITs referencing sustainable development are not being held out as the
entire universe of BITs incorporating the principle or its nomenclature. They are,
however, the only BITs at all referring to sustainable development that form part of the
Sample BITs.
546
It is here assumed that a near reference to the principles of sustainable development
does not and cannot trigger an otherwise incorporation by reference of the sparse but
broad precepts ascribed to the various narratives pertaining to sustainable development.
547
Canada-China BIT, supra note 546, at 1.
EAST\64724221. 3199
of the BIT (Article 8) only extends conventional limits to foreign
investment.548 In fact, Article 10 (“Expropriation”) materially differs from
the expropriation provision that the SADC Model BIT promotes.549 By
way of example, the expropriation exception elements include “nondiscriminatory manner.” Similarly, and also in stark contrast with the
SADC Model BIT, the expropriation compensation is to be valued at the
“fair market value of the investment expropriated,” and even unlike the
NAFTA, includes a valuation “before the expropriation, or before the
impending expropriation became public knowledge, whichever is
earlier.”550 Expropriation compensation also is to include “interest at a
548
In addition to limiting the application the most-favored nation treatment, and national
treatment to non-conforming measures, paragraphs 4 and 5 read:
4. In respect of intellectual property rights, a Contracting Party may
derogate from Articles 3 [Promotion and Admission of Investment], 5
[Most Favoured Nation Treatment] and 6 [National Treatment] in a
manner that is consistent with international agreements regarding
intellectual property rights to which both Contracting Parties are
parties.
5. Articles 5, 6 and 7, do not apply to:
(a)
procurement by a Contracting Party;
(b)
subsidies or grants provided by a Contracting Party,
including governmentsupported loans, guarantees and
insurance.
Id. art. 8. ¶¶ 4-5.
549
Article 10 (Expropriation) in relevant part reads:
1. Covered investments or returns of investors of either Contracting
Party shall not be expropriated, nationalized or subjected to measures
having an effect equivalent to expropriation or nationalization in the
territory of the other Contracting Party (hereinafter referred to as
“expropriation”), except for a public purpose, under domestic due
procedures of law, in a non-discriminatory manner and against
compensation. Such compensation shall amount to the fair market
value of the investment expropriated immediately before the
expropriation, or before the impending expropriation became public
knowledge, whichever is earlier, shall include interest at a normal
commercial rate until the date of payment, and shall be effectively
realizable, freely transferable, and made without delay. The investor
affected shall have a right, under the law of the Contracting Party
making the expropriation, to prompt review, by a judicial or other
independent authority of that Contracting Party, of his or its case and of
the valuation of his or its investment in accordance with the principles
set out in this paragraph.
Id. art. 10 ¶ 1 (emphasis supplied).
550
Id.
EAST\64724221. 3200
normal commercial rate until the date of payment.”551 Most significantly,
the expropriation provision extends to “measures having an effect
equivalent to expropriation or nationalization in the territory of the other
Contracting Party.”552 This element also represents a material difference
between the Canada-China BIT and the paradigmatic sustainable
development SADC Model BIT.
The policies underlying the expropriation provision of the CanadaChina BIT hardly bespeak any penchant favoring Host States. To the
contrary, considerable deference in the form of compensation with interest
based upon actual fair market value is accorded to the Home State
investor. It is safe to conclude that the sustainable development principle
did not help shape the elements of the expropriation standard contained in
the BIT. The scope and content of this standard of protection is more in
keeping with the succinct but eloquent second sentence of the preamble
that follows the reference to sustainable development. It reads:
“DESIRING to intensify the economic cooperation of both States, based
on equality and mutual benefit.”553 This Statement of objectives is simply
poles apart from the SADC Model BIT’s preamble, which centered on
explaining that investment protection for purposes of attracting greater
FDI was not the primary objective of the BIT and would only be
welcomed to the extent that such investment comported with the principle
of sustainable development as articulated in the Model BIT.554
The sustainable development expression of the public purpose
doctrine does find a space in two very important articles of the CanadaChina BIT (Articles 12 and 33). Article 12 allows for regulation of
transfers relating to a covered investment virtually on a limitless basis so
long as the proscription is “equitable,” “non-discriminatory,” and meets
with “good faith application” of the relevant law.555 Most of the Article
can be described as constituting an exception that provides the Host State
with an unrestricted license to temper or altogether proscribe transfers
pertaining to covered investments. The subject matters falling within this
transfer exception range from criminal law and bankruptcy concerns to the
soundness of a Contracting Party’s balance of payment status.556 The
551
Id.
552
Id.
553
Id. preamble.
554
See supra notes 494-498 and accompanying text for comparison with the preamble of
the SADC Model BIT.
555
Canada-China BIT, supra note 546, art. 12 ¶ 3.
556
Article 12 in pertinent part provides:
EAST\64724221. 3201
scope of the exception pursuant to Paragraph 4 exclusively concerns
financial effect at a macroeconomic level. Even though the Global crossindustry consequences of fiscal policies pertaining to FDI may have a
macroeconomic effect on Host States, individual FDI represent
microeconomic events, typically limited to a single industry sector, and
structured to enjoy a limited or even abbreviated economic cycle or
lifespan. Thus, BIT exceptions premised on macroeconomic concerns, but
likely to apply indiscriminately to specific foreign private investment,
command strict scrutiny.
3. Notwithstanding the provisions of paragraphs 1 and 2 of this Article,
a Contracting Party may prevent a transfer through the equitable, nondiscriminatory and good faith application of its laws relating to:
(a) bankruptcy, insolvency or the protection of the rights of
creditors;
(b) issuing, trading or dealing in securities;
(c) criminal or penal offenses
(d) reports of transfers of currency or other monetary
instruments; or
(e) ensuring the satisfaction of judgments in adjudicatory
proceedings.
4. (a) Nothing in the Agreement shall be construed to prevent a
Contracting Party from adopting or maintaining measures that restrict
transfers when the Contracting Party experiences serious balance of
payment difficulties, or the threat thereof, provided that such measures:
(i)
are of limited duration, applied on a good-faith basis,
and should be phased out as the situation calling for
imposition of such measures improves;
(ii) do not constitute a dual or multiple exchange rate
practice;
(iii) do not otherwise interfere with an investor’s ability to
invest, in the territory of the Contracting Party, in the
form chosen by the investor and, as relevant, in local
currency, in any assets that are restricted from being
transferred out of the territory of the Contracting Party;
(iv) are applied on an equitable and non-discriminatory
basis;
(v)
are promptly published by the government authorities
responsible for financial services or central bank of the
Contracting Party;
(vi) are consistent with the Articles of Agreement of the
International Monetary Fund done at Bretton Woods on
22 July 1944; and
(vii) avoid unnecessary damage to the commercial,
economic and financial interests of the other
Contracting Party.
Id. art. 12 ¶¶ 4-5.
EAST\64724221. 3202
The Article 33 “General Exceptions” of the Canada-China BIT are
broad as to subject matter even though they invite classification into only
three categories. The article represents a veritable confluence of dissimilar
public purpose categories and attendant policies. The domestic regulatory
space carved out in Paragraph 2 draws extensively from Article XX of the
GATT.557 Notably, the relationship between the need to regulate transfers
arising from covered investments, and that need’s connection to
environmental measures and the protection of “human, animal or plant life
or health,”558 is not at all clear.559 While the mechanical and boiler plate
incorporation of international trade law principles into investment law
exceptions certainly serves to broaden the public purpose doctrine and to
impose constraints on investment protection obligations running from
Host States in favor of foreign investors/investments, it does not advance
the policies underlying international investment protection and the
promotion of FDI.
Paragraph 3 of Article 33 adopts “prudential financial measures”
that also are found in the UNCTAD 2012 Report560 and in the SADC
Model BIT.561 This public purpose exception, as in the SADC Model BIT,
relies on a “reasonable standard to determine ‘measures for prudential
reasons.’”562 Even though “prudential reasons” in this context is a term of
557
Paragraph 2, Article 33 of the Canada-China BIT States:
2. Provided that such measures are not applied in an arbitrary or
unjustifiable manner, or do not constitute a disguised restriction on
international trade or investment, nothing in this Agreement shall be
construed to prevent a Contracting Party from adopting or maintaining
measures, including environmental measures:
(a) necessary to ensure compliance with laws and regulations that
are not inconsistent with the provisions of this Agreement;
(b) necessary to protect human, animal or plant life or health; or
(c) relating to the conservation of living or non-living exhaustible
natural resources if such measures are made effective in
conjunction with restrictions on domestic production or
consumption.
Id. art. 33, ¶ 2 (emphasis supplied).
558
Id.
559
See infra Chapter 5 discussing the wholesale importation of international commercial
law principles into investment law instruments, particularly BITs.
560
See discussion supra at Chapter 2.E(4).
561
See discussion supra at Chapter 2.F(1).
562
Canada-China BIT, supra note 546, art. 33 ¶ 3.
EAST\64724221. 3203
art, the “reasonable measures” standard broadens even further the scope of
the exception beyond the already liberal industry sector subject matter.563
The third category of exceptions are much like those contained in
Article XXI of the GATT, which pertains to State security. Even though
this category finds a place within the seemingly all-embracing sustainable
development principle as articulated by the UNCTAD 2012 Report and
the SADC Model BIT, the exception traditionally finds its way into the
public purpose doctrine by way of what historically has been described as
a State’s “police powers.”564 The verbatim transposition of GATT Article
563
Paragraph 3 of Article 33, States:
3. Nothing in this Agreement shall be construed to prevent a
Contracting Party from adopting or maintaining reasonable measures
for prudential reasons, such as:
(a) the protection of depositors, financial market participants
and investors, policy-holders, policy-claimants, or persons
to whom a fiduciary duty is owed by a financial
institution;
(b) the maintenance of the safety, soundness, integrity or
financial responsibility of financial institutions; and
(c) ensuring the integrity and stability of a Contracting
Party’s financial system.
Id. (emphasis supplied).Paragraph 4 further amplifies the prudential financial measures
exception, providing:
4. Nothing in this Agreement shall apply to non-discriminatory
measures of general application taken by any public entity--in pursuit of
monetary and related credit policies or exchange rate policies. This
paragraph shall not affect a Contracting Party’s obligations under
Article 12. [the transfer article].
Id. art. 33 ¶ 4.
564
Paragraph 5 of Article 33 reads:
5. Nothing in this Agreement shall be construed:
(a) to require a Contracting Party to furnish or allow access to any
information if the Contracting Party determines that the disclosure
of that information is contrary to its essential security interests;
(b) to prevent a Contracting Party from taking any actions that it
considers necessary for the protection of its essential security
interests:
(i)
EAST\64724221. 3204
relating to the traffic in arms, ammunition and
implements of war into such traffic and transactions in
other goods, materials, services and technology
undertaken directly or indirectly for the purpose of
XXI Exceptions into the general exceptions of the BIT emphasizes a
dissonance between the policy objectives of the BIT and the broad
macroeconomic and distinct character of the security exceptions. By way
of example, it is a challenge to conceive the manner in which a Host
State’s investment protection obligations would justify being curtailed
because of the Host State’s actions arising from its “essential security
interests relating to the implementation of national policies or international
agreements respecting the non-proliferation of nuclear weapons or other
nuclear explosive devices.”565 Notwithstanding this conceptual
incompatibility, the unbridled vestiture of authority to implement “nondiscriminatory measures of general application” render it likely that a
State may use seemingly unrelated subject matters under the guise of
national security to limit its foreign investment protection obligations with
respect to a specific FDI or industry sector.
Generally, the sustainable development principle is present in the
Canada-China BIT, but it is materially limited in scope. The direct
reference to the principle in the preamble certainly may be construed to
amplify the scope of existing exceptions. The confluence of general
exceptions extracted from principles of international trade law,
supplying a military order or other security
establishment,
(ii) in time of war or other emergency in international
relations, or
(iii) relating to the implementation of national policies or
international agreements respecting the non-proliferation
of nuclear weapons or other nuclear explosive devices;
or
(c) to prevent a Contracting Party from taking action in pursuance of
its obligations under the United Nations Charter for the
Maintenance of International Peace and Security.
Id. art. 32, ¶ 5. As one commentator has provided:
‘But what are the police powers of a State? They are nothing more or
less than the powers of government inherent in every sovereignty to the
extent of its dominions. And whether a State passes a quarantine law,
or a law to punish offences, or to establish courts of justice, or requiring
certain instruments to be recorded, or to regulate commerce within its
own limits, in every case it exercises the same powers; that is to say,
the power of sovereignty, the power to govern men and things within
the limits of its dominion.’
In other words, the police power and State sovereignty are synonymous.
D. Benjamin Barros, The Police Power and the Takings Clause, 58 U. Miami L. Rev.
471, 477 (2004) (quoting Thurlow v. Com. of Mass., 46 U.S. 504, 583 (1847)).
565
Canada-China BIT, supra note 530, art. 33 ¶ 5(b)(iii).
EAST\64724221. 3205
international investment law, and economic development policies—all
falling within the umbrella of the public purpose doctrine— broadens the
doctrine, contributes to ambiguity, and continues to cloud the predictive
value and workings of the doctrine as a normative foundation for an
expansive right to regulate on the part of Host States.
Despite a more limited scope as expressed in the Canada-China
BIT, the sustainable development iteration of the public purpose doctrine,
despite the effects of international treaty negotiation, demonstrates that
treaty-drafting techniques alone are not enough to endow the principle
with an objective standard and limited application. The technical challenge
is conceptual and doctrinal, and not only one of lack of precision of
expression, even though this latter issue does follow once there is an
agreement on doctrine and concept. Specificity of subject matter,
proportionality in application, and non-self-judging standard all are
necessary predicates to the application of international treaty-drafting
techniques that the doctrine must experience.
The Canada-China BIT, executed between the second and the
eleventh largest economies in the world,566 raises a most fundamental
question: Is there a place for the sustainable development iteration of the
public purpose doctrine in investment protection treaties where the cosignatories are developed industrialized States? Are the policies articulated
in the UNCTAD 2012 Report and the commentaries to the SADC Model
BIT—the correction of asymmetries and the non-yielding of rights that
may be construed as reasonably related to economic development—at all
relevant, let alone necessary, in the context of industrialized States? Is the
invocation of the sustainable development principle in this context more
helpful than harmful? When considering the problems endemic to the
public purpose doctrine, the equally problematic iterations of the
sustainable development principle, and the paucity of material purporting
to ascribe a limited definition and content to public purpose and its
sustainable development iteration, the answer to the queries ranges from
highly unlikely to no. The economic status of industrialized States does not
warrant the correction of historical asymmetries pursuant to principles
embedded in investment treaties that favor Host States. The Canada-China
BIT contributes to an empirical understanding of the changes that
international arm’s length treaty negotiation process imposes on
566
According to the World Bank, as of 2011 China had the second largest economy in
terms of GDP and Canada ranked eleventh. WORLD BANK, Gross domestic product 2011,
http://databank.worldbank.org/databank/download/GDP.pdf (last visited Apr. 8, 2013).
As of this writing, the World Bank has yet to release the data for 2012.
EAST\64724221. 3206
sustainable development as a normative ground for limiting Host State
investor protection obligations.567
The Agreement Between Japan And The Republic of Colombia for
the Liberalization, Promotion and Protection of Investment (“ColombiaJapan BIT”), signed in 2011, does provide greater recognition to the
sustainable development principle than the Canada-China BIT. It does so
without just merely referencing the principle while also acknowledging as
paramount the need to promote investment:
Recognizing the growing importance of the progressive
liberalization of investment for stimulating initiative of
investors and for promoting prosperity and mutually
favorable business activity in the Contracting Parties;
Recognizing that these objectives and the promotion of
sustainable development can be achieved without relaxing
health, safety and environmental measures of general
application.568
b.
The Colombia-Japan BIT
The Colombia-Japan BIT569 does carve out broad exceptions to
performance requirements in Article 5(6) subject to “unjustifiable” or
“arbitrary” qualifications that are not particularly stringent and have
567
The agreement between Canada and the Republic of Peru for the Promotion and
Protection of Investments was entered into on November 14, 2006, and very much
resembles the Canada-China BIT in terms of the treaty’s incorporation of the sustainable
development iteration of the public purpose doctrine. Generally it is materially
indistinguishable from the Canada-China BIT. The Canada-Peru BIT, however, does
contain an article on health, safety, and environmental measures, providing:
The Parties recognize that it is inappropriate to encourage investment
by relaxing domestic health, safety or environmental measures.
Accordingly, a Party should not waive or otherwise derogate from, or
offer to waive or otherwise derogate from, such measures as an
encouragement for the establishment, acquisition, expansion or
retention in its territory of an investment of an investor. If a Party
considers that the other Party has offered such encouragement, it may
request consultation with the other Party and the two Parties shall
consult with a view to avoiding any such encouragement.
Canada-Peru BIT, supra note 546, art. 11.
568
Colombia-Japan BIT, supra note 546, preamble.
569
This BIT is analyzed in considerable detain in the Chapter 5 regarding public purpose
in BITs.
EAST\64724221. 3207
proven to be amply flexible as a matter of scope.570 This proposition needs
to be qualified by observing that the public purpose categories constituting
the subject matter of the public purpose exception are significantly closer
to the language in Article XX of the GATT than to the more generic
development language that one may associate with the principle of
sustainable development.
This BIT does contain a quite extraordinary provision in the
expropriation and compensation Article 11 that quite clearly establishes
the importance of the public purpose doctrine to Host States. Even though
the BIT’s expropriation article provides for Hull formula compensation
(“payment of a prompt, adequate, and effective compensation”)571 and
meaningfully deviates from the SADC Model BIT paradigm such as in the
inclusion of “any measure equivalent to expropriation or
nationalization,”572 these “pro-Home State” expropriation and
compensation terms that broaden the application of the exception are
tempered by the likely Host State’s (here Colombia) emphasis on public
purpose as more than just a boiler plate term of art mechanically included
in expropriation provisions in BITs. The paragraph merits consultation:
1.
Neither Contracting Party may expropriate or
nationalize investments in its Area of investors of the other
Contracting Party or take any measure equivalent to
expropriation or nationalization (hereinafter referred to as
‘expropriation’), except, for a public purpose, in
accordance with due process of law and Article 4, in a nondiscriminatory manner, and upon payment of a prompt,
570
Paragraph 6 reads:
6. Provided that such measures are not applied in an arbitrary or
unjustifiable manner and provided that such measures do not constitute
a disguised restriction on international trade or investment activities,
nothing in subparagraphs 1(b), (c) and (f) and 2(a) and (b) shall be
construed to prevent a Contracting Party from adopting or maintaining
measures, including environmental measures:
(a) necessary to secure compliance with laws and regulations that
are not inconsistent with the provisions of this Agreement;
(b) necessary to protect human, animal or plant life or health; or
(c) related to the conservation of living or non-living exhaustible
natural resources.
Colombia-Japan BIT, supra note 546, art. 5 ¶ 6(a)-(c).
571
Id. art. 11 ¶ 1.
572
Id.
EAST\64724221. 3208
adequate and effective
paragraphs 2 through 4.
compensation
pursuant
to
Note: In the case of the Republic of Colombia, the term
‘public purpose’, being used in this paragraph, is a term
used in international agreements and may be expressed in
the domestic law of the Republic of Colombia using terms
such as: ‘public purpose’ or ‘social interest.’573
Quite significantly, Colombia, the likely Host State in this treaty
relationship because of its status as an economy in transition,574 caused the
public purpose doctrine within the meaning of the BIT’s expropriation
provision to be defined jointly by (i) “international agreements” and (ii)
“the domestic law of the Republic of Colombia.” This reference to
international agreements also likely concerns the application of the
customary international law of public purpose to the public purpose
component of the BIT’s Article 11 expropriation and compensation
provision. The invocation of public purpose in international agreements or
international customary law only is conducive to the legacy public purpose
doctrine, which in turn would well serve both the expectations and needs
of developing State signatories to BITs, here Colombia. A generic
reference to international agreements further bolsters the proposition that
what Colombia intended was to define public purpose as broadly as
possible, as would inevitably ensue from a definition premised on
international agreements that are multidisciplinary and ranging from
human rights to international commercial law to international investment
law.
The laws of Colombia provide for an expansive construction of the
terms public purpose, public interest, and social interest. By way of
example, Article 58 of the Colombian Constitution of 1991 is structured
around the public purpose doctrine and emphasizes the deep connection
between the doctrine, property rights, and a right to regulate based on
public purpose:
Original
Art. 58. Se garantizan la
propiedad privada y los demás
derechos adquiridos con arreglo a
573
Translation
Art. 58. Private property is
guaranteed together with all
other rights arising from
Id. (emphasis supplied).
574
See, e.g., Robert W. McGee , Corporate Governance in Transition and Developing
Economies:
A
Case
Study
of
Colombia
(August
25,
2010),
http://ssrn.com/abstract=1665056 or http://dx.doi.org/10.2139/ssrn.1665056 (last visited
April 29, 2013) (evaluating Colombia as a transition economy under relevant OECD
standards).
EAST\64724221. 3209
las leyes civiles, los cuales no
pueden ser desconocidos ni
vulnerados por leyes posteriores.
Cuando de la aplicación de una
ley expedida por motivo de
utilidad pública o interés social,
resultaren en conflicto los
derechos de los particulares con
la necesidad por ella reconocida,
el interés privado deberá ceder al
interés público o social.
legislation, which rights cannot
be disavowed or violated by
subsequent
legislation.
Wherever
emergency
legislation arises from a matter
of public or social interest, and
such legislation results in a
conflict with the rights of
private parties, private interests
must yield to public or social
interests.
La propiedad es una función
social que implica obligaciones. Property is a social function
entails
obligations.
Como tal, le es inherente una that
Accordingly, inherent in these
función ecológica.
obligations is an ecological
El Estado protegerá y promoverá responsibility.
las
formas
asociativas
y The State shall protect and
promote all collective and
solidarias de propiedad.
private forms of property
Por motivos de utilidad pública o rights.
de interés social definidos por el
legislador,
podrá
haber Based
upon
concerns
expropriación mediante sentencia pertaining to public utility or
judicial e indemnización previa. social interests as defined by
legislature,
legal
Esta se fjará consultando los the
intereses de la comunidad y del expropriations may take place
afectado. En los casos que pursuant to judicial judgment
determine el legislador, dicha or prior indemnity. Any such
expropriación podrá adelantarse expropriation shall balance
por vía administrativa, sujeta a community interests and those
posterior acción contenciosa of the aggrieved party. As set
administrativa, incluso respecto forth by the legislature, any
such expropriation may be
del precio.
expedited pursuant to an
administrative
proceeding
subject to a subsequent
administrative challenge that
Con todo, el legislador, por may also pertain to valuation.
razones de equidad, podrá
determinar los casos en que no The legislature based upon
haya
lugar
al
pago
de equity considerations, may
indemnización, mediante el voto legislate
instances
where
favorable de la mayoría absoluta payment of indemnity pursuant
de los miembros de una y otra to an expropriation shall not
EAST\64724221. 3210
Cámara. Las razones de equidad,
así como los motivos de utilidad
pública o de interés social,
invocados por el legislador, no
serán
controvertibles
judicialmente.
issue. These cases, however,
shall be subject to a majority
vote of all members of
Congress at the time. The
legislature’s premises based on
equity, public utility or social
interest shall not be subject to
judicial review. 575
The invocation of the domestic law of the Republic of Colombia as a basis
for defining public purpose within the meaning of the Article 11
expropriation and compensation provision of the Colombia-Japan BIT,
also speaks to Colombia’s intent as the presumed Host State, to apply a
public purpose doctrine that is self-judging (based upon a subjective
standard) and content expansive so as to defy a specific subject matter
content that would limit its application.576 The qualification in the note of
the very text, “[i]n the case of the Republic of Colombia,” 577 [not
applicable to Japan] raises the issue as to whether the public purpose
doctrine as embodied in customary international law should be construed
by itself or also (i) within the context of the domestic law of the invoking
State, (ii) the domestic law of all signatories to the treaty, or (iii) only the
domestic law of the party to the treaty explicitly identified (if any) in the
text. While the annex referred to in Article 11 (Annex III) is silent on this
issue, it does support a liberal construction of public purpose based upon a
self-judging subjective standard and thus argues for a hybrid legacydomestic law approach.578 The comment to public purpose within the
575
Constitution of 1991 of the Republic of Colombia (translation & emphasis supplied by
author). See also Daniel Bonilla, Liberalism and Property in Colombia: Property as a
Right and Property as a Social Function, 80 FORDHAM L. REV. 1135 (2011).
576
A note to Article 11 provides:
Note: In the case of the Republic of Colombia, the term “public
purpose,” being used in this paragraph, is a term used in international
agreements and may be expressed in the domestic law of the Republic
of Colombia using terms such as “public purpose” or “social interest.”
Colombia-Japan BIT, supra note 546, art. 11.
577
Id.
578
The Note in the text at the conclusion of Article 11 (Expropriation and Compensation)
reads: “Note: For greater certainty, Article 11 shall be interpreted in accordance with
Annex III.” Id. Paragraph 3 of Annex III provides:
3. Except in such circumstances as when a measure or a series of
measures is so severe in the light of their purpose that they cannot be
reasonably reviewed as having been adopted and applied in good faith,
non-discriminatory measures of a Contracting Party that are designed
EAST\64724221. 3211
meaning of Article 11 explicitly refers to the exclusion of “measures [that
are] so severe in the light of their purpose that they cannot reasonably
[be]viewed as having been adopted and applied in good faith.”579 The
purportedly explanatory Annex III to the article arguably creates greater
uncertainty than certainty it may otherwise ever aspire to redeem.
The Colombia-Japan BIT, in contrast with the expansive security
exception approach of the SADC Model BIT and most of the Sample
BITs, qualifies in a restrictive manner the public order element to the
“general and security exceptions” contained in Article 15.580 The Note
contained in the text rests on four words, “genuine,” “sufficiently serious,”
and “fundamental,” to qualify the exercise of a public order exception by
providing:
Note: The public order exception may be invoked only
where a genuine and sufficiently serious threat is posed to
one of the fundamental interests of society.581
Taken together, the use of public purpose within Article 11
(“Expropriation and Compensation”), and public order within Article 15
(“General and Security Exceptions”), notably evince the effects of the
international treaty negotiation process. The Article 11 “Expropriation and
Compensation” provision, arguably favoring the protection of Home State
and applied to protect legitimate public welfare objectives in
accordance with paragraph 1 of Article 15, do not constitute indirect
expropriation.
Colombia-Japan BIT, supra note 546, annex III ¶ 3.
579
Id.
580
The relevant provisions of Article 15 read:
1. Subject to the requirement that such measures are not applied by a
Contracting Party in a manner which would constitute a means of
arbitrary or unjustifiable discrimination against the other Contracting
Party or a disguised restriction on investments of investors of that other
Contracting Party in the Area of the former Contracting Party, nothing
in this Agreement other than Article 12 shall be construed to prevent
that former Contracting Party from adopting or enforcing measures,
including those to protect the environment:
(a) necessary to protect human, animal or plant life or health;
(b) necessary to protect public morals or to maintain public
order.
Id. at art. 15, ¶ 1 (a)-(b) (emphasis supplied).
581
Id.
EAST\64724221. 3212
investments, is substantively materially qualified by a very expansive
construction of the public purpose exception that would tend to favor Host
States. Similarly, but in reverse order, the broad Article 15 “General and
Security Exceptions” that would typically favor Host States is tempered by
a very narrow construction of the public order exception. Likely, the very
severity of the international treaty negotiation process provided for a
reference to sustainable development in the preamble582 that exceeded the
brief mention of the principle in the Canada-China BIT, but was not
overtly implemented throughout the Colombia-Japan BIT. The more
detailed reference in the BIT’s preamble does facilitate any likely
interpretive broadening of the application of the public purpose doctrine
by a signatory.583
c.
The Croatia-Azerbaijan BIT
Yet another BIT from the Sample BITs to reference sustainable
development is the Agreement between the Government of the Republic
of Croatia and the Government of the Republic of Azerbaijan on the
Promotion and Reciprocal Protection of Investments (“Croatia-Azerbaijan
BIT”), which was signed in 2007. Unlike the Canada-China BIT between
two industrialized countries with leading economies, and the ColombiaJapan BIT between an industrialized leading economy and an economy in
transition, the Croatia-Azerbaijan BIT is between two underdeveloped
582
See generally ANTHONY AUST, MODERN TREATY LAW & PRACTICE (Cambridge
University Press 2007).
583
Even though the sustainable development iteration of the public purpose doctrine is
not widely or very overtly implemented throughout the BIT, aspects of the principle are
accorded considerable weight. By way of example, Article 21 (Measures on Health,
Safety, Environment, and Labor) is sufficiently broad so as to fall squarely within the
sustainable development dialogue:
1. Each Contracting Party recognizes that it is inappropriate to
encourage investment activities of investors of the other Contracting
Party and of a non-Contracting Party by relaxing its domestic health,
safety or environmental measures or by lowering its labor standards.
Accordingly, each Contracting Party should not waive or otherwise
derogate from such measures or standards as an encouragement for the
establishment, acquisition or expansion in its Area of investments by
investors of the other Contracting Party and of a non-Contracting Party.
2. Each Contracting Party may adopt, maintain or enforce any
measure that it considers appropriate to ensure that investment
activities in its Area are undertaken in a manner not incompatible with
its environmental law, provided that such measure is consistent with
this Agreement.
Colombia-Japan BIT, supra note 546, art. 21 ¶¶ 1-2.
EAST\64724221. 3213
countries or economies in transition.584 It is unlikely that, whatever
economic or developmental statistics may distinguish these countries from
each other, they find themselves fundamentally at parity. It would likely
follow that, absent the need to satisfy an exigent strategic resource need,
neither State enjoyed a strategic or tactical negotiating posture over the
other at the time of the signing of the BIT. These factors lend considerable
interest to the Croatia-Azerbaijan BIT’s treatment of the sustainable
development iteration of the public purpose doctrine.
The term “sustainable development” appears only once in the
treaty. The preamble in a single sentence mentions sustainable
development in connection with the protection of health, safety, and the
environment, even though the term is separated from these categories by a
“conjunctive.”585 In contrast with the SADC Model BIT, Article II of the
BIT identifies the promotion and protection of investments as the
foundational policy underlying the Agreement, in part, by detailing
investment protection obligations extending from the Host State in favor
584
Even though Azerbaijan and Croatia have striking differences, they also enjoy
material similarities pertaining to their respective economic development.
Annual Data – 2011
Population (m)
GDP (US$ m; market exchange rate
GDP (US$ m; purchasing power
parity)
GDP per head (US$; market exchange
rate)
GDP per head (US$; purchasing
power parity)
Exchange rate (av)
Azerbaijan
9.1
57,773
119,560
Croatia
4.4
62,493.4
78,620
6,341
14,197
13,122
17,860
0.790 Manat:US$
5.34 HRK:US$
Historical Averages (%) – 2007-2011
Population growth
Real GDP growth
Real domestic demand growth
Inflation
Current-account balance (%
GDP)
FDI inflows (% of GDP)
of
Azerbaijan
1.3
9.7
6.3
10.3
28.5
Croatia
-0.2
-0.3
-1.2
2.9
-4.6
-1.9
5.1
Source: The Economist Intelligence Unit (most figures estimated).
585
The reference reads: “DESIRING to achieve these objectives in a manner consistent
with the protection of health, safety, and the environment and the protection of
sustainable development.” Croatia-Azerbaijan BIT, supra note 546, preamble.
EAST\64724221. 3214
of foreign investments-investors.586 Although the detailing of orthodox
investor protection standards in the form of (i) customary international
law’s minimum standard of treatment of aliens, (ii) fair and equitable
treatment, (iii) full and constant protection and security, and (iv) the
proscription of unreasonable, arbitrary, or discriminatory measures, the
absence of sustainable development qualifying language is noticeable, and
to some extent, at odds with the preamble’s mention of sustainable
development as a principle underlying the BIT. In this same vein, the
general exceptions provision (Article 5) is remarkably narrow as to scope,
omitting exceptions having their origins in the GATT, financial prudential
measures, and even State security, or those exceptions typically associated
loosely with State police powers.587 The BIT hardly carves any
586
Article II (Promotion and Protection of Investments) provides:
1.
Each Contracting Party shall encourage and create favorable
conditions in its State territory for investments by investors of the
other Contracting Party and in exercise of powers conferred by its
national legislation shall admit such investments.
2.
Each Contracting Party shall at all times accord in its State
territory to investments and returns of investors of the other
Contracting Party treatment in accordance with the customary
international law minimum standard of treatment of aliens,
including fair and equitable treatment and full and constant
protection and security.
3.
Each Contracting Party shall not impair by unreasonable, arbitrary
or discriminatory measures the management, maintenance, use,
enjoyment, acquisition or disposal of investments in its State
territory of investors of the other Contracting Party.
4.
Each Contracting Party shall not impose mandatory measures on
investments by investors of the other Contracting Party concerning
purchase of materials, means of production, operation, transport,
marketing of its products or similar orders having unreasonable or
discriminatory effects.
5.
Each Contracting Party shall, within the framework of its national
legislation, consider in good faith all applications for necessary
permits in connection with investments in its State territory,
including authorizations for engaging executives, managers,
specialists and technical personnel of the investor’s choice.
Id. art. 2.
587
A separate “security interests” provision is contained under Article 10 under the
nomenclature “essential security interests.” In addition to being brief, the single sentence
Article does limit its application to “essential security interests”:
Nothing in this Agreement shall be construed to prevent any
Contracting Party from taking any action that it considers necessary for
the protection of its essential security interests deriving from its
EAST\64724221. 3215
meaningful, or even orthodox, exceptions that seek to broaden the
domestic regulatory space of a presumably Host State.
Within the context of two underdeveloped States, at least pursuant
to the Croatia-Azerbaijan BIT, the sustainable development iteration of the
public purpose doctrine in fact finds no voice, a fact that cannot be
altogether surprising. The BIT terms plainly State that its foremost
objective is to foster foreign investment by according such investments the
“orthodox standards of protection” without material qualifications or
restrictions in the form of exceptions. In addition, the BIT is neither used
as a methodology for addressing perceived or actual asymmetries in the
relationship between States, nor as a means to finance internal policies
characterized as “development” efforts pursuant to the tenet limiting
foreign investments only to the extent that they are compatible with the
principle of “sustainable development.” Countries of equal or comparable
industrial development, economies, and spheres of political influence,
appear to be less likely to seek protection from a peer contracting party
through adherence to the principle of sustainable development. Similarly,
it is improbable that they would have sufficient negotiating gravitas to
secure it.
d.
The Japan - Independent State of Papua New
Guinea BIT
The Agreement Between the Government of Japan and the
Government of the Independent State of Papua New Guinea for the
Promotion and Protection of Investment(“Japan – Papua New Guinea
BIT”), signed in 2011, also references sustainable development. In
addition to a preamble that recognizes sustainable development as in pari
materia with foreign investment,588 transfer exceptions premised on
membership in a customs, economic or monetary union, a common
market or a free trade area.
Id. art. 10.
588
Because of the notably balanced approach that this BIT takes with respect to the
promotion of foreign investment and the sustainable development iteration of the public
purpose doctrine, the preamble merits citation in its entirety with emphasis placed on
specific language:
Recognising the importance of foreign investment for national
development, economic growth and general welfare of the citizens in
Japan and the Independent State of Papua New Guinea (hereinafter
referred to as ‘the Contracting Parties’);
Desiring to promote investment in order to strengthen the economic
relationship between the Contracting Parties;
EAST\64724221. 3216
national law and based upon “good faith application” also constitute
prominent elements of the BIT that enhance the Host State’s regulatory
space.589
Intending to create stable, equitable and favourable conditions for
greater investment by investors of a Contracting Party in the Area of
the other Contracting Party;
Recognising that economic development, social development and
environmental protection are interdependent and mutually reinforcing
pillars of sustainable development and that cooperative efforts of the
Contracting Parties to promote investment can play an important role
in enhancing sustainable development;
Recognising also that these objectives can be achieved without relaxing
health, safety and environmental measures of general application;
Acknowledging the importance of the cooperative relationship between
labour and management in promoting investment between the
Contracting Parties; and
Convinced that this Agreement will contribute to the further
development of the overall relationship between the Contracting
Parties.
Japan – Papua New Guinea BIT, supra note 546, preamble (emphasis supplied).
589
The transfer of funds arising from covered investments exceptions pertains to laws or
regulations found to be “relating to” a broad subject matter regulated by national law.
Although seemingly national or parochial in nature, the “relating to” rubric is particularly
broad. Article 14 (“Transfers”) in pertinent part provides:
3. Notwithstanding paragraphs 1 and 2, a Contracting Party may
delay or prevent a transfer through the equitable, non-discriminatory
and good-faith application of its laws and regulations relating to:
(a) bankruptcy, insolvency or the protection of the rights of
creditors;
(b) issuing, trading or dealing in securities;
(c) criminal or penal offences; or
(d) ensuring compliance with orders or judgments in adjudicatory
proceedings.
Id. art. 14, ¶ 3 (a)-(d) (emphasis supplied). Measures tantamount to transfer exceptions in
the international arena and under the heading of “temporary safeguard measures,” are
contained in Article 17, paragraph 1, subsections (a) and (b). This provision underscores
the contrast between the multiple cross-industry sector foreign direct investments, which
generally may only be characterized as microeconomic events and policies giving rise to
exception fiat at a national level ostensibly premised on macroeconomic considerations:
1.
A Contracting Party may adopt or maintain measures not
conforming with its obligations under Article 2 relating to crossborder capital transactions and Article 14:
EAST\64724221. 3217
The Japan-Papua New Guinea BIT structurally resembles the
Colombia-Japan BIT in that both agreements segregate exceptions arising
from the GATT’s Article XX, Prudential Measures, and Health, Safety,
and Environmental Measures and Labour Standards.590 As to all three
categories, however, the Colombia-Japan BIT accords the Host State with
broader scope as to these public purpose exceptions. The sustainable
development principle in this treaty largely is limited to an expansive
preamble and the fundamental exceptions contained in Articles 14, 17, 18,
and 22. The tempered expression of the sustainable development principle
throughout the BIT to some extent comports with the treatment accorded
to sustainable development in the Colombia-Japan BIT, but within the
context of Papua New Guinea, and not Colombia, facing Japan, an
industrialized State with considerable more resources and political
influence than Papua New Guinea. This BIT helps to corroborate the
proposition591 that treaty-drafting techniques, without more, are
insufficient in placing constraints on the public purpose doctrine or its
sustainable development iteration. Also, notwithstanding the rigors of
international treaty negotiations between an industrialized State and a
developing State, enough of the principle survives to accord both States
considerable latitude in the exercise of their right to regulate. The
“sustainable development BITs” further buttress the case for finding that
the public purpose doctrine generally, and in its sustainable development
configuration, (i) forms part of customary international law and (ii) finds a
materially broader expression under customary international law than
within conventional international law, such as the NAFTA.
G.
The Public
Instruments
Purpose
Doctrine
in
WTO
International
The public purpose doctrine finds ample expression in WTO
international instruments.592 Throughout these instruments the public
(a) in the event of serious balance-of-payments and external
financial difficulties or threats thereof, or
(b) in cases where, in exceptional circumstances, movements of
capital cause or threaten to cause serious difficulties for
macroeconomic management, in particular, monetary and
exchange rate policies.
Id. art. 17 ¶ 1(a)-(b) (emphasis supplied).
590
See id. art. 18 (“Prudential Measures”), art. 22 (“Health, Safety and Environmental
Measures, and Labor Standards”).
591
See supra note 486 & accompanying text.
592
By “WTO international instruments” a collective reference is intended to pertain to (i)
The WTO General Agreement on Trade and Tariffs (1947), (ii) The WTO General
Agreement on Trade and Tariffs (1994), (iii) The WTO Agreement on Government
Procurement (1994) (iv) The WTO General Agreement on Trade and Services (1994), (v)
EAST\64724221. 3218
purpose doctrine emerges as a central organizing principle that is
fundamental in the creation of a hierarchy of constraints and premises that
affect “regulatory sovereignty,” and under an orthodox paradigm, “the
right to regulate.” From an evidentiary perspective, the WTO international
instruments, without more, well suffice to establish the existence of a
vibrant public purpose doctrine within customary international law’s
normative sphere. These instruments demonstrate six fundamental
propositions concerning the customary international law expression of the
public purpose doctrine.
First, the international trade law exceptions broaden the subject
matter content of the public purpose doctrine because of their
macroeconomic policies. Second, the public purpose doctrine within the
framework of the WTO international instruments is expressed as a
paramount precept to which principles of confidentiality, transparency,
and compliance with legal authority are subordinated. Third, the public
purpose doctrine, whether by design or happenstance, in part, is identified
as necessary to the effort of harmonizing the policies and goals underlying
international trade and international investment law. Fourth, the
sustainable development expression of the public purpose doctrine that is
so central to the UNCTAD 2012 Report, and the SADC Model BIT, for
example, has its genesis in WTO international instruments. Fifth, despite
the reiteration of and conceptual reliance on the public purpose doctrine
throughout the WTO international instruments, the doctrine is nowhere
defined and self-judging (subjective) standards are implicitly referred to
for the doctrine’s application. Sixth, the WTO international instruments do
not provide an actual or conceptual foundation for the proposition that
“the right to regulate” remains one and the same irrespective of whether
such regulatory exercise takes place within the context of foreign
investment protection or the administration of international trade barriers.
The prominence of the public purpose doctrine in the WTO
international instruments is testimony to the doctrine’s importance. The
absence, however, of substantive content, uniformity as to nomenclature,
application, as well as the dogmatic insistence on a self-judging
methodology of application, all argue in favor of a meaningful
reexamination of the doctrine through the lens of economic globalization,
and a paradigm of interdependence that commands transforming “the right
to regulate” into “considerations of regulatory sovereignty” that are
conducive to multilateral policy consequences.593
The WTO Agreement on Trade-related Aspects of Intellectual Property Rights (1994),
and (vi) The WTO Doha Ministerial Declaration (2001).
593
By “multilateral policy consequences” reference is made to the new use of public
purpose as a principle that furthers the interests of both developing and developed States.
EAST\64724221. 3219
1.
WTO Doha Ministerial Declaration: November 14, 2001
The WTO Doha Ministerial Declaration adopted on November 14,
2001 (“the Doha Declaration”), much like the UNCTAD international
instruments,594 references the public purpose doctrine in the context of a
multilateral trading system. Thus, at first sight, public purpose within the
context of the Doha Declaration would appear to be distinct from public
purpose as a legal exception broadening the right to regulate to the
detriment of an obligation to protect foreign investment. Careful
consideration, however, demonstrates that the distinct iterations of the
public purpose doctrine throughout the Doha Declaration are no different
from the exceptions found in Articles XX and XXI of the GATT, as well
as in the SADC Model BIT and other actual BITs in force in the form of
the sustainable development principle. Consequently, the public purpose
doctrine is, to a great extent, both a legal and economic principle. This
dual character is markedly apparent in the Doha Declaration.
The preamble to the Doha Declaration is testament to the
sustainable development expression of the public purpose doctrine and to
sustainable development’s dual configuration. While the second and sixth
paragraphs of the preamble quite significantly reference the preamble to
the Marrakesh Agreement,595 Paragraph 6 explicitly mentions the
By emphasizing interdependence and a policy of transnational cooperation where
investor-State disputes find resolution in more than just “all or nothing” juridical rubrics.
594
See discussion supra at Chapter 2.E.
595
The Agreement establishing the World Trade Organization concluded on April 15,
1994, a.k.a., “Marrakesh Agreement” first identified the principle of sustainable
development in connection with an international trade system and as a global objective.
The principle is contained in embryonic form and the preamble enjoys a neutral
multilateral tone that does not express any particular penchant favoring industrialized or
underdeveloped States. Instead, its emphasis is on the development of an integrated
multilateral international trade framework that would maximize global efficiencies. It
reads:
The Parties to this Agreement,
Recognizing that their relations in the field of trade and economic
endeavour should be conducted with a view to raising standards of
living, ensuring full employment and a large and steadily growing
volume of real income and effective demand, and expanding the
production of and trade in goods and services, while allowing for the
optimal use of the world’s resources in accordance with the objective of
sustainable development, seeking both to protect and preserve the
environment and to enhance the means for doing so in a manner
consistent with their respective needs and concerns at different levels of
economic development,
Recognizing further that there is need for positive efforts designed to
ensure that developing countries, and especially the least developed
EAST\64724221. 3220
“objective” and “promotion” of sustainable development.596 This
paragraph sets forth the premise that eventually would serve to bolster the
public purpose doctrine found in international trade law, and later
incorporated into international investment law. By identifying exceptions,
States are provided with the right to regulate for specific public purposes,
“subject to the requirement that they are not applied in a manner which
would constitute a means of arbitrary or unjustified discrimination
between countries where the same conditions prevail, or a disguised
restriction on international trade, and are otherwise in accordance with the
provisions of the WTO Agreements.”597
Identifying public purpose with the right to regulate within the
framework of international trade law “at the levels [that a State] considers
appropriate,”598 also provides foundation for the subjective application of
the doctrine at least within the confines of international investment and
trade law.599 The public purpose doctrine, whether expressed in the form
among them, secure a share in the growth in international trade
commensurate with the needs of their economic development,
Being desirous of contributing to these objectives by entering into
reciprocal and mutually advantageous arrangements directed to the
substantial reduction of tariffs and other barriers to trade and to the
elimination of discriminatory treatment in international trade relations,
Resolved, therefore, to develop an integrated, more viable and durable
multilateral trading system encompassing the General Agreement on
Tariffs and Trade, the results of past trade liberalization efforts, and all
of the results of the Uruguay Round of Multilateral Trade Negotiations.
Marrakesh Agreement Establishing the World Trade Organization preamble, Apr. 15,
1994, 1867 U.N.T.S. 154 [hereinafter Marrakesh Agreement].
596
Doha Declaration, supra note 393, at ¶ 6.
597
Id.
598
Id.
599
Paragraph 6 of the Preamble of the WTO Doha Ministerial Declaration provides:
6. We strongly reaffirm our commitment to the objective of sustainable
development, as Stated in the preamble to the Marrakesh Agreement.
We are convinced that the aims of upholding and safeguarding an open
and non-discriminatory multilateral trading system, and acting for the
protection of the environment and the promotion of sustainable
development can and must be mutually supportive. We take note of the
efforts by members to conduct national environmental assessments of
trade policies on a voluntary basis. We recognize that under WTO rules
no country should be prevented from taking measures for the protection
of human, animal or plant life or health, or of the environment at the
levels it considers appropriate, subject to the requirement that they are
not applied in a manner which would constitute a means of arbitrary or
EAST\64724221. 3221
of the sustainable development principle or otherwise, necessitates a
hybrid economic-law configuration. In this regard, the Marrakesh
Agreement’s preamble together with the Doha Declaration contribute
mightily to the doctrine’s multifaceted constitution. Indeed, the Doha
Declaration further developed this duality by emphasizing the relationship
between trade and investment. The public purpose doctrine must be able to
contribute to harmonizing the underlying legal and economic policies
pertaining to trade and investment while at the same time serving their
respective efficiencies. Paragraphs 20 and 21 of the Doha Declaration
directly speak to the need to meet the expectations of industrialized States
in the arena of investment protection.600
As part of reconciling incongruities between industrialized States
by maximizing investment, but also requiring regulatory transparency
within an investor friendly and stable environment, the Doha Declaration
unjustifiable discrimination between countries where the same
conditions prevail, or a disguised restriction on international trade, and
are otherwise in accordance with the provisions of the WTO
Agreements. We welcome the WTO´s continued cooperation with
UNEP and other inter-governmental environmental organizations. We
encourage efforts to promote cooperation between the WTO and
relevant international environmental and developmental organizations.
Id. preamble ¶ 6.
600
Paragraphs 20 and 21 in pertinent part provide:
20. Recognizing the case for a multilateral framework to secure
transparent, stable and predictable conditions for long-term crossborder investment, particularly foreign direct investment, that will
contribute to the expansion of trade, and the need for enhanced
technical assistance and capacity-building in this area as referred to in
paragraph 21, we agree that negotiations will take place after the Fifth
Session of the Ministerial Conference on the basis of a decision to be
taken, by explicit consensus, at that Session on modalities of
negotiations.
21. We recognize the needs of developing and least-developed
countries for enhanced support for technical assistance and capacity
building in this area, including policy analysis and development so that
they may better evaluate the implications of closer multilateral
cooperation for their development policies and objectives, and human
and institutional development. To this end, we shall work in
cooperation with other relevant intergovernmental organisations,
including UNCTAD, and through appropriate regional and bilateral
channels, to provide strengthened and adequately resourced assistance
to respond to these needs.
Id. ¶¶ 20-21.
EAST\64724221. 3222
addresses the need to reconcile Host States’ developmental objectives and
regulatory authority with Home State expectations. It observed:
Any framework should reflect in a balanced manner the
interests of Home and Host countries, and take due account
of the development policies and objectives of Home
governments as well as their right to regulate in the public
interest.601
The Doha Declaration is fair and reasonable on this issue inasmuch as it
does not fashion a general imperative that irreversibly amplifies the
regulatory sovereignty of least developed or underdeveloped countries, but
rather aspirationally provides that the particular needs of States are to be
considered as part of any framework that touches or concerns transnational
trade and investment between capital-exporting and capital-importing
States.602
The Doha Declaration argues for a tempered and balanced
approach to public purpose that, at minimum, aspires to reconcile any
conflict between policy and trade objectives pertaining to Home States and
Host States. To be sure, the Doha Declaration expresses concern for the
plight of developing and “least developed” State, but does not do so in a
manner that may undermine the “transparency” and “stability”
expectations of capital-exporting countries.603 What language the Doha
601
Id. ¶ 22 (emphasis supplied).
602
As to this proposition the Declaration provides:
The special development, trade and financial needs of developing and
least-developed countries should be taken into account as an integral
part of any framework, which should enable Members to undertake
obligations and commitments commensurate with their individual
needs and circumstances. Due regard should be paid to other relevant
WTO provisions. Accounts should be taken, as appropriate, of existing
bilateral and regional arrangements on investment.
Id. (emphasis supplied).
603
For example, paragraphs 49 and 50 provide:
49. The negotiations shall be conducted in a transparent manner
among the participants, in order to facilitate the effective of
participation of all. It shall be conducted with a view to ensuring
benefits to all participants and to achieving an overall balance in the
outcome of the negotiations.
50. The negotiations and the other aspects of the Work Programme
shall take fully into account the principle of special and differential
treatment for developing and least-developed countries embodied in:
Part IV of the GATT 1994; the Decision of 28 November 1979 on
EAST\64724221. 3223
Declaration may have favoring capital-importing States does not exceed a
distinguished treatment based upon consent that never abandons the need
to have fundamental principles in place, such as transparency and stability,
in order to maximize the likelihood of success and benefits redounding to
all States. Consequently, the WTO Doha Ministerial Declaration
conceptually comports with the adoption of a proportionality test in the
application of the public purpose doctrine in order to determine the extent
to which, if at all, the right to regulate may infringe upon a State’s
obligation to protect foreign investments/investors. The broad content of
the doctrine compels consideration of competing interests if in fact it is to
further the aims of all parties and to contribute to the creation of a stable
and transparent international investment community between
industrialized States, underdeveloped States, and economies in transition.
2.
Public Purpose and the WTO Agreement on TradeRelated Aspects of Intellectual Property Rights (1994)
Article 8 of the 1994 WTO Agreement on Trade-Related Aspects
of Intellectual Property Rights (the “WTO Agreement on Intellectual
Property Rights”) identifies the public purpose doctrine (in the form of
“public interest”) as providing a normative basis for regulatory activity in
a very distinct space identified as “sectors of vital importance to [ States’]
socio-economic and technological development.”604 The exercise of this
right to regulate is Stated as self-judging (subjective). Even though the
term “necessary” generally is suggestive of some objective standard,
contextually the use of this adjective is more indicative of an internal
criteria best rooted in the perceived needs of individual countries.
Similarly, the term “vital importance” is not defined and its relationship to
such broad subject matters such as “socio-economic and technological
development” hardly narrows the doctrine’s substantive content. The first
part of the conjunctive “and,” pertaining to the protection of “public health
and nutrition,” most closely resembles the special category public purpose
Differential and More Favourable Treatment, Reciprocity and Fuller
Participation of Developing Countries; the Uruguay Round Decision on
Measures in Favour of Least-Developed Countries; and all other
relevant WTO provisions.
Id. ¶¶ 49-50 (emphasis supplied).
604
Article 8, paragraph 1, provides in full:
Members may, in formulating or amending their laws and regulations,
adopt measures necessary to protect public health and nutrition, and to
promote the public interest in sectors of vital importance to their socioeconomic and technological development, provided that such measures
are consistent with the provisions of this Agreement.
TRIPs, supra note 393, art. 8 ¶ 1.
EAST\64724221. 3224
subject matter contained as exceptions in Article XX of the GATT.
Paragraph 1 of Article 8 (“Principles”) read in its totality as a single
sentence paragraph materially resembles the principle of sustainable
development.
Pursuant to the guise of ordre public or public morality, signatories
may proscribe the commercial exploitation of inventions within their
territory.605 Such public order or morality may serve as an exception to
exclude from patentability, inventions, or their commercial exploitation
based upon the GATT’s Article XX Special Public Purpose Categories.606
This instrument also subordinates confidentiality to the public
interest iteration of the public purpose doctrine607 in the form of “security
exceptions” that also find space in the WTO Agreement on Intellectual
Property Rights, much in keeping with the subject matter spectrum
enunciated in Article XXI of the GATS.608 In keeping with most
605
Id. art. 27 ¶ 2 (“Patentable Subject Matter”).
606
Article 27, paragraph 2 (“Patentable Subject Matter”), States:
Members may exclude from patentability inventions, the prevention
within their territory of the commercial exploitation of which is
necessary to protect ordre public or morality, including to protect
human, animal or plant life or health or to avoid serious prejudice
to the environment, provided that such exclusion is not made merely
because the exploitation is prohibited by their law.
Id. (emphasis supplied).
607
Article 63, paragraph 4, provides that: “[n]othing in paragraphs 1,2 and 3 shall require
Members to disclose confidential information which would impede law enforcement or
otherwise be contrary to the public interest or would prejudice the legitimate commercial
interests of particular enterprises, public or private.” Id. art. 63 ¶ 4 (emphasis supplied).
608
Article 73 (“Security Exceptions”) States:
Nothing in this Agreement shall be construed:
(a) to require a Member to furnish any information the
disclosure of which it considers contrary to its essential
security interests; or
(b) to prevent a Member from taking any action which it
considers necessary for the protection of its essential
security interests;
(i) relating to fissionable materials or the materials from
which they are derived;
(ii) relating to the traffic in arms, ammunition and
implements of war and to such traffic in other goods
EAST\64724221. 3225
references to the public purpose doctrine, exercise of a security exception
is based on a subjective standard, notwithstanding the use of the term
“essential” as a presumably objective qualifying factor. Thus, within the
confines of Article 73, confidentiality or non-disclosure obligations are
subordinated to the security exception iteration of the public purpose
doctrine. This exception is common to WTO international instruments.609
3.
The Public Purpose Doctrine in the WTO General
Agreement on Trade in Services (1994)
The subordination of the principle of confidentiality or obligations
of non-disclosure to the public purpose doctrine is certainly not limited to
security-centered iterations of the doctrine. The 1994 WTO General
Agreement on Trade in Services (“GATS”) presents an illustrative
example. Article III of that Agreement sets forth the following
transparency imperative:
Each Member shall publish promptly and, except in
emergency situations, at the latest by the time of their entry
into force, all relevant measures of general application
which pertain to or affect the operation of this Agreement.
International agreements pertaining to or affecting trade in
services to which a Member is a signatory shall also be
published.610
Article III bis, however, subordinates the obligation to provide
transparency to “public interest.”611 In doing so, it places the public
purpose doctrine on equal footing with a normative foundation to act that
and materials as is carried on directly or indirectly for
the purpose of supplying a military establishment;
(iii) taken in time of war or other emergency in
international relations; or
(c) to prevent a Member from taking any action in pursuance
of its obligations under the United Nations Charter for the
Maintenance of International Peace and Security.
Id. art. 73 (emphasis supplied).
609
See, e.g., GATS, supra note 393, art. XIV bis (containing identical security
exceptions); AGP, supra note 393, art. XXIII ¶ 1; GATT, supra note 19, art. XXI
(containing identical language).
610
GATS, supra note 393, art. III ¶ 1.
611
Id. art. III bis.
EAST\64724221. 3226
would arise from (i) impeding law enforcement or (ii) prejudicing
legitimate commercial interests.612
Subject to general qualifications that are nowhere defined and are
broad and malleable as to both meaning and scope, under the banner of the
protection of “public morals” or the maintenance of “public order,”613
signatories are authorized to implement whatever measure arguably may
meet these broad public purpose categories.614 The Agreement likewise
enunciates the common international trade law public purpose exception
that now has found space in BITs: “measures necessary to protect human,
animal or plant life or health.”615
The GATS further amplifies the public purpose category that the
customary international law expression of the doctrine presents. Materially
indistinguishable from the standard found in Paragraph 25.2 of Article 25
of the SADC Model BIT, 616 the Agreement carves out considerable
regulatory space in the form of prudential measures as to finance and
macroeconomics.617 The all-encompassing scope of the prudential
612
Article III bis (Disclosure of Confidential Information) reads:
Nothing in this Agreement shall require any Member to provide
confidential information, the disclosure of which would impede law
enforcement, or otherwise be contrary to the public interest, or which
would prejudice legitimate commercial interests of particular
enterprises, public or private.
Id.
613
Footnote 5 to Article XIV (“General Exceptions”) of the WTO General Agreement on
Trade in Services (1994) does restrict measures adopted for the purported maintenance of
“public order” by asserting that “the public order exception may be invoked only where a
genuine and sufficiently serious threat is posed to one of the fundamental interests of
society.” Id. art. XIV n.5. Despite a strict construction of this constraining factor, the
relative meaning of such rudimentary elements of the qualifying sentence, such as
“fundamental interests of society,” “genuine” and “sufficiently serious threat,” limit its
effectiveness.
614
Id. art. XIV ¶ (a).
615
Id. art. XIV ¶ (b).
616
SADC Model BIT Template, supra note 494, at 46-47.
617
The exception entitled “Domestic Regulation” reads:
(a) Notwithstanding any other provisions of the Agreement, a Member
shall not be prevented from taking measures for prudential reasons,
including for the protection of investors, depositors, policyholders or
persons to whom a fiduciary duty is owed by a financial service
supplier, or to ensure the integrity or stability of the financial system.
Where such measures do not conform with the provisions of the
EAST\64724221. 3227
measures exception is purportedly limited “[w]here such measures do not
conform with the provisions of the Agreement,” or otherwise are “used as
a means of avoiding the Member’s commitments or obligations under the
Agreement.”618 This language, however, is tantamount to asserting that in
cases where the measure undertaken for prudential reasons would give rise
to a breach of the agreement, only then would it be deemed excessive.
Consequently, the exception remains unfettered.
Even though the WTO international instruments embrace the
principle of sustainable development of the public purpose doctrine, they
still aspire to fashion “a multilateral framework of principles and rules…”
aimed at promoting the interests of all participants on a mutually
advantageous basis and that securing an overall balance of rights and
obligations, while giving due respect to national policy objectives.”619
From a structural perspective, unlike the UNCTAD instruments620 or the
SADC Model BIT621 the interests of both industrialized States and
underdeveloped countries are treated as being equally important.
This aspiration notwithstanding the public purpose doctrine in its
various iterations unduly broadens the domestic regulatory space of its
members. The public purpose doctrine is used as an exception that
supersedes: (i) the right to confidentiality;622 (ii) the right to
transparency;623 (iii) the right to patentability of inventions;624 and (iv)
Agreement, they shall not be used as a means of avoiding the
Member’s commitments or obligations under the Agreement.
(b) Nothing in the Agreement shall be construed to require a Member
to disclose information relating to the affairs and accounts of individual
customers or any confidential or proprietary information in the
procession of public entities.
GATS, supra note 393, annex on financial services ¶ 2.
618
Id.
619
Id. preamble.
620
For the purpose of this writing, “UNCTAD Instruments” refers to (1) the UNCTAD
FDI Policy Note, supra note 393; and (2) the 2012 World Investment Report, supra note
423.
621
See supra Chapter 2.F(1).
622
See supra notes 609-10 & accompanying text.
623
Id.
624
See supra notes 607-08 & accompanying text.
EAST\64724221. 3228
rights arising from contractual commitments.625 It also provides the State
with a regulatory sovereignty that is practically unrestricted. States may
enact measures of any kind in furtherance of: (i) public order,626 (ii) public
morality,627 (iii) the protection of human, animal or plant life or health,628
(iv) protection of the environment, (v) security629 and (vi) financial
institutional or economic soundness630 among other interests. The
customary international law profile of the public purpose doctrine that
arises from these texts is one that shall inevitably lead to asymmetries
between States. An unbridled right to regulate also is conducive to
conflicts that are “resolved” pursuant to “all or nothing” arbitral
adjudications. No principle of proportionality finds a voice in these
international texts with respect to the public purpose doctrine. These
complexities are made worse by the vast scope of special public purpose
categories such as the principle of sustainable development, which in its
pristine State within the context of the SADC Model BIT would render
any measure colorably related in any way to economic development a
justifiable infringement on an obligation to protect foreign investment.
The self-judging standard of most iterations of the public purpose doctrine
also militates against uniformity, predictability, and process legitimacy.
Finally, treaty drafting techniques may alleviate, but certainly not cure the
ills arising from a legacy public purpose doctrine devoid of content that is
subjective in application.
625
See, e.g., GATS, supra note 393, art. III.
626
See, e.g., ACIA, supra note 389, art. 17; American Convention, supra note 13; AGP,
supra note 393, art. 23; GATS, supra note 393, art. 27 .
627
See, e.g., TRIPs, supra note 393, art. 27 ¶ 2.
628
See, e.g., Doha Declaration, supra note 393, at ¶ 6.
629
See, e.g., TRIPs, supra note 393, art. 73.
630
See, e.g., GATS, supra note 393, annex on financial services ¶ 2.
EAST\64724221. 3229
CHAP
PTER 3
Defin
ning the Profile of the Public Purpoose Doctrinee in Human
n Rights
Conventions
EAST\64
4724221.3
230
The actual status of the public purpose doctrine in customary
international law cannot be ascertained without reference to what is
perhaps the most universal principle that prescriptively qualifies and
constrains the exercise of sovereignty: human rights.631 The relationship
between the public purpose doctrine and human rights is both complex
and inexhaustible. Because of these qualities, this effort is limited to
contextualizing and analyzing the scant but ever-present references to the
public purpose doctrine in only three international human rights
instruments.632 Several observations on the relationship between the public
purpose doctrine and international human rights as identified in the
Universal Declaration of Human Rights proclaimed by the General
Assembly of the United Nations on December 10, 1948, and the public
purpose doctrine are necessary as a condition to understanding more
comprehensively the scope and content of the public purpose doctrine in
customary international law. The connection between these two precepts
(public purpose and human rights) is both antagonistic and
complementary.
The orthodox or legacy public purpose doctrine since its
meaningful origins in the writings of Plato,633 Aristotle,634 and
Thucydides,635 has had its normative foundations in a public interest and
common welfare that overrides the interests of any single individual. The
prescriptive foundation is in an overarching common welfare. The
description of the doctrine, however, is one that assumes that the polis or
State that makes possible the execution and instantiation of this principle
631
For a discussion on the juxtaposition of international standards and national authority,
see Bas De Gaay Fortman, Beating the State at its Own Game: An Inquiry into the
Intricacies of Sovereignty and the Separation of Powers, in CHANGING PERCEPTIONS OF
SOVEREIGNTY AND HUMAN RIGHTS, ESSAYS IN HONOUR OF CEES FLINTERMAN 41 (Ineke
Boerefijn & Jenny Goldschmidt, eds., Intersentia 2008). See also Fons Coomans,
Sovereignty Fading Away? Prioritising Domestic Health Needs Versus Promoting Free
Trade, in CHANGING PERCEPTIONS OF SOVEREIGNTY AND HUMAN RIGHTS, ESSAYS IN
HONOUR OF CEES FLINTERMAN 123 (Ineke Boerefijn & Jenny Goldschmidt, eds.,
Intersentia 2008); JOSÉ E. ÁLVAREZ, INTERNATIONAL ORGANIZATIONS AS LAW MAKERS
156 (Oxford University Press 2005) (discussing the relationship between human rights
and what the author describes as “the shrinking concept of domestic jurisdiction.”).
632
The authors have selected (i) the European Convention, supra note 16 (ii) the
American Convention, supra note 13; and (iii) the African Charter, supra note 399.
633
See generally PLATO, THE REPUBLIC
pub., 2nd ed.). ,
OF
PLATO (Alan Bloom, trans., Basic Books,
634
See generally ARISTOTLE, NECOMACHIAN ETHICS (Robert C. Bartlett & Susan D.
Collins, trans., Univ. of Chicago Press 2011); ARISTOTLE, THE POLITICS (Carnes Lord,
trans., Univ. of Chicago Press 2011, 1st ed.).
635
See generally THUCYDIDES, HISTORY OF THE PELOPONNESIAN WAR (M. I. Finley, ed.,
Rex Warner, trans., Penguin Classics 1954).
EAST\64724221.3
231
of public welfare. Such polis or State in turn has interests commensurate
with its understanding of the broader public purpose that justifies placing
decisions based upon the public interests and the common good above the
pursuits of any single individual or even any identifiable group or
community within the very State. Therefore, in broad strokes, the legacy
public purpose doctrine is an expression of the preeminence of the
concerns of the public, i.e., presumably the State, over the individual—an
expression of the normative standing of the general over the specific
International human rights principles serve to safeguard the
individual from the de jure or de facto deprivation of fundamental rights
on the part of the State.636 While the invocation of public purpose is an
exercise of regulatory sovereignty that broadens the State’s regulatory
space,637 the principles of international human rights law aspire, at least in
part, to diminish the State’s exercise of regulatory sovereignty where such
exercise infringes upon the rights of an individual, groups of individuals,
or a peoples.638 In fact, international human rights law attempts to place
stark constraints on the States’ exercise of regulatory fiat against an
individual or a peoples, even in instances where such regulation purports
to be justified by public purpose considerations.639 Viewed from this
636
“The purpose of human rights is at root in harmony with the purpose of the rule of
law, properly understood as establishing conditions under which human dignity, freedom,
and equality will flourish.” Kevin T. Jackson, The Normative Logic of Global Economic
Governance: In Pursuit of Non-Instrumental Justification for the Rule of Law and Human
Rights, 22 MINN. J. INT’L L. 71, 145 (2013). As such, when “in jeopardy, human rights
must be entrenched not only in centralized and formal coercive systems of ‘hard’ rules of
international law, but even more importantly in decentralized and informal systems of
‘soft’ norms of economic governance régimes. Regardless, the rule of law ideal which
underwrites these respective normative systems demands that the norms be binding and
overriding in their essential characters.” Id. at 145-46.
637
See supra note 51 & accompanying text (discussing the Westphalian concept of
sovereignty).
638
See, e.g., Eric Allen Engle, The Transformation of the International Legal System:
The Post-Westphalian Legal Order, 23 QLR 23, 32 (2004) (“[T]he principles of national
self-determination and human rights contradict the Westphalian concept of sovereignty.
This contradiction cannot be harmonized because the competing poles tend toward
mutually exclusive outcomes.”).
639
While “[n]o strong historical basis exists for the protection of an individual’s human
rights from violations by his or her own government” as “[a] State’s treatment of its
nationals was tradition ally a matter of State sovereignty,” Jo M. Pasqualucci, The InterAmerican Human Rights System: Establishing Precedents and Procedure in Human
Rights Law, 26 U. MIAMI INTER-AM. L. REV. 297, 302 (1995), there has been a recent
trend towards according international human rights a preeminent status on the hierarchal
ladder of international law.
A strong indication of the super-priority given to human rights regulation can be gleaned
from the judgment of the Court of First Instance of the European Union in the case of
Kadi v. Council. Dinah Shelton, Normative Hierarchy in International Law, 100 AM. J.
EAST\64724221. 3232
perspective, international human rights champions are very specific and
“narrow” universe interests of an individual, individuals or peoples over
the imposition of competing measures by the State, or the “primacy” of
the particular over the general. Analytically, pursuant to an international
human rights normative framework, the prescriptive content of general
human rights law is satisfied by the fundamental rights that provide the
individual with particular standing within the State as to a person’s right to
action and omission within the organizational constraints of the State.
Therefore, it follows that the prescriptive basis of this hierarchy in turn
rests with principles that purport to be the most common and, therefore,
universal, and for this reason, higher than any interest that a State may
possibly justify based upon mere invocation of public purpose.640
INT’L L. 291, 311 (2006) (citing Case T-315/01, Kadi v. Council (Eur. Ct. Justice Sept.
21, 2005)). In that case “[t]he Court opined that from the standpoint of international law,
the obligations of the UN member States ‘clearly prevail’ over every other obligation of
domestic law or international treaty law, including, for those that are members of the
Council of Europe, their obligations under the European Convention on the Protection of
Human Rights and Fundamental Freedoms.” Id. at 311 (footnote omitted). Ultimately,
however, the Court left room for individual protections to prevail, as Stated succinctly by
Shelton:
Thus, the Court’s judicial review, in principle, did not extend to the
lawfulness of Council measures. Lest this conclusion call into question
the entire framework of human rights guarantees established in Europe
since the end of World War II, the Court found an exception to the
notion of unreviewable and unlimited Security Council power:
Nonetheless, the Court is empowered to check,
indirectly, the lawfulness of the resolutions of the
Security Council in question with regard to jus
cogens, understood as a body of higher rules of
public international law binding on all subjects of
international law, including the bodies of the United
Nations, and from which no derogation is possible.
This astonishing conclusion was rationalized by the Court’s Statement
that the UN Charter itself ‘presupposes the existence of mandatory
principles of international law, in particular, the protection of the
fundamental rights of the human person.’ The UN Charter also
provides that the Security Council is to act in accordance with the
purposes and principles of Charter Article 24(2). In effect, the Court
claimed that the entire body of human rights law constitutes jus cogens,
referring to ‘the mandatory provisions concerning the universal
protection of human rights, from which neither the Member States nor
the bodies of the United Nations may derogate because they constitute
intransgressible principles of international customary law.’
Id. at 311-12 (internal citations omitted).
640
For example, as noted by Dinah Shelton:
EAST\64724221. 3233
Conventional and customary international human rights law,
however, is to find its perfect workings by supporting or supplementing
domestic law.641 International human rights law does not aspire to
dislodge domestic law even though it serves as a “check and balance” on
domestic law. To the extent that domestic law infringes upon cognizable
international human rights precepts, human rights law serves as a metaState recourse for relief. It is within this framework that in an era of
informational and economic globalization, orthodox paradigms of
Westphalian sovereignty yield to a more expansive, malleable, and
flexible conception of sovereignty contemplating a juridical hierarchy
where international law preempts domestic juridical authority.642 Despite
Apart from treaty provisions, claims of primacy may be made by those
involved in promoting or ensuring respect for a particular body of
international law. Some human rights institutions, for example, have
asserted the priority of human rights guarantees in general over other
international law, without necessarily claiming that the entire body of
law constitutes jus cogens. The UN Committee on Economic, Social
and Cultural Rights, in a 1998 Statement on globalization and
economic, social, and cultural rights, declared that the realms of trade,
finance, and investment are in no way exempt from human rights
obligations. The Committee’s concerns were raised a second time in a
Statement urging members of the World Trade Organization (WTO) to
adopt a human rights approach to trade matters, asserting that the
“promotion and protection of human rights is the first responsibility of
Governments.”
Id. at 294 (internal footnotes omitted). However, as demonstrated by Shelton, this
primacy has yet to run its course through a wide-spread State practice:
The asserted primacy of all human rights law has not been reflected in
State practice. If eventually accepted, it will reject the notion of lex
specialis for trade or other fields where States can claim to be free from
human rights obligations. It could also profoundly affect the work of all
international organizations, which commonly claim to be governed
only by their constituting legal instruments and the mandate therein
conferred.
Id. at 294.
641
“The purpose of international human rights treaties is not to limit a State’s policy
choices, but to ensure that the policy eventually chosen still allows the individual to enjoy
his basic freedoms and rights.” Jan Arno Hessbruegge, Human Rights Violations Arising
from Conduct of Non-State Actors, 11 BUFF. HUM. RTS. L. REV. 21, 28 (2005). See also
Dr. Anja Seibert-Fohr, The Rise of Equality in International Law and Its Pitfalls:
Learning from Comparative Constitutional Law, 35 BROOK. J. INT’L L. 1, 38 (2010)
(“The purpose of human rights norms is to set basic standards for the enjoyment of
fundamental rights and freedoms, not to unduly limit legislative discretionary power by
providing a judicially prescribed model for legislation.”).
642
See generally Carlos M. Vazquez, Customary International Law as U.S. Law: A
Critique of the Revisionist and Intermediate Positions and a Defense of the Modern
EAST\64724221. 3234
this presumed “hierarchy,” international human rights law cannot be
altogether severed from municipal law. Because international human
rights law is to operate in tandem with municipal law, a robust, contentrich, and objective (not self-judging) public purpose doctrine is not only
welcomed, but actually indispensable. The doctrine serves as a conceptual
point of convergence where international humans rights law, international
investment law, the interests of home and Host States (particularly as
concerns foreign investment) all find a meaningful space.
The European Convention on Human Rights (“European
Convention”), the American Convention on Human Rights (“American
Convention”), and the African Charter on Human Rights and Peoples’
Rights (“African Charter”), all have preambles that frame the particular
historical context of their respective jurisdictions. Sensitivity to this
historical framework is necessary. It points to the substantive role of
historicity in the regional and Global formation and transformation of
international human rights, and, therefore, also of the public purpose
doctrine. The content and scope of human rights conventional law is
materially defined by the social and economic history of the signatory
States.643 In this sense, its aspiration to uniformity is challenged and must
be questioned in analyzing its relation to the public purpose doctrine.
Similarly the subject matter and application of the public purpose doctrine
also must be understood as differing accordingly.644 The preamble, of the
European Convention on Human Rights, for example, nowhere mentions
explicitly or alludes to implicitly economic or financial development.
Economic development and human rights find no resonance in this
Preamble.645 The preamble does not contain any etymological iteration of
Position, 86 NOTRE DAME L. REV. 1495 (2011); Curtis A. Bradley & Jack L. Goldsmith,
Customary International Law as Federal Common Law: A Critique of the Modern
Position, 110 HARV. L. REV. 815 (1997).
643
See Myres S. McDougal, Harold D. Lasswell & Lung-chu Chen, Human Rights and
World Public Order: A Framework for Policy-Oriented Inquiry, 63 AM. J. INT’L L. 237,
242-43 (1969).
644
The content, scope, and application of public purpose expressions such as the
Principle of Sustainable Development, supra Chapter 2.E(5) and the Principle of
Permanent Sovereignty Over Natural Resources, infra Chapter 5, are illustrative
examples of expressions of the public purpose doctrine that cannot be meaningfully
understood or submitted to sustained analysis without first exploring their connection to
underdeveloped States and the process and consequences of decolonization.
645
The preamble to the European Convention on Human Rights, as amended by
Protocols Nos. 11 and 14, is succinct and reads as follows:
THE GOVERNMENTS SIGNATORY HERETO, being members of
the Council of Europe,
EAST\64724221. 3235
the words “economic” or “financial.” The only connection between the
European Convention’s preamble and economic development as a
foundational human right is through its consideration of the Universal
Declaration of Human Rights. It is noteworthy that the European
Convention does not incorporate by reference or otherwise explicitly
embrace all of the principles enunciated as rights in that Declaration.646
Considering the Universal Declaration of Human Rights proclaimed by
the General Assembly of the United Nations on the 10th December
1948;
Considering that this Declaration aims at securing the universal and
effective recognition and observance of the Rights therein declared;
Considering that the aim of the Council of Europe is the achievement
of greater unity between its members and that one of the methods by
which that aim is to be pursued is the maintenance and further
realization of human rights and fundamental freedoms;
Reaffirming their profound belief in those fundamental freedoms which
are the foundation of justice and peace in the world and are best
maintained on the one hand by an effective political democracy and on
the other by a common understanding and observance of the human
rights upon which they depend;
Being resolved, as the governments of European countries which are
like-minded and have a common heritage of political traditions, ideals,
freedom and the rule of law, to take the first steps for the collective
enforcement of certain of the rights Stated in the Universal
Declaration,…
European Convention, supra note 16, preamble.
646
The European Convention on Human Rights studiously uses the participle
“considering” in connection with the Universal Declaration of Human Rights two of the
three times that the Declaration is at all referenced in the preamble. The reference to the
Declaration not containing the “considering” language also qualifies the wholesale
incorporation of the Declaration by asserting that the signatories to the European
Convention are taking “the first steps for the collective enforcement of certain of the
rights Stated in the Universal Declaration,…” Id. (emphasis supplied).
The United Nations Declaration on Human Rights directly or indirectly
references economic development as a fundamental principle in the following six articles:
Art. 17.
(1) Everyone has the right to own property alone as well as in
association with others.
(2) No one shall be arbitrarily deprived of his property.
Art. 22.
Everyone, as a member of society, has the right to social security
and is entitled to realization, through national effort and
EAST\64724221. 3236
international co-operation and in accordance with the organization
and resources of each State, of the economic, social and cultural
rights indispensable for his dignity and the free development of his
personality.”
Art. 23.
(1) Everyone has the right to work, to free choice of employment,
to just and favourable conditions of work and to protection against
unemployment.
(2) Everyone, without any discrimination, has the right to equal
pay for equal work.
(3) Everyone who works has the right to just and favourable
remuneration ensuring for himself and his family an existence
worthy of human dignity, and supplemented, if necessary, by other
means of social protection.
(4) Everyone has the right to form and to join trade unions for the
protection of his interests.
Art. 24.
Everyone has the right to rest and leisure, including responsible
limitation of working hours and periodic holidays with pay.
Art. 25.
(1) Everyone has the right to a standard of living adequate for the
health and well-being of himself and of his family, including food,
clothing, housing and medical care and necessary social services,
and the right to security in the event of unemployment, sickness,
disability, widowhood, old age or other lack of livelihood in
circumstances beyond his control.
(2) Motherhood and childhood are entitled to special care and
assistance. All children, whether born in or out of wedlock, shall
enjoy the same social protection.
Art. 26.
(1) Everyone has the right to education. Education shall be free, at
least in the elementary and fundamental stages. Elementary
education shall be compulsory. Technical and professional
education shall be made generally available and higher education
shall be equally accessible to all on the basis of merit.
(2) Education shall be directed to the full development of the
human personality and to the strengthening of respect for human
rights and fundamental freedoms. It shall promote understanding,
tolerance and friendship among all nations, racial or religious
groups, and shall further the activities of the United Nations for the
maintenance of peace.
(3) Parents have a prior right to choose the kind of education that
shall be given to their children.
EAST\64724221. 3237
The preamble does affirmatively State that its paramount objective
is “the achievement of greater unity between its members,”647 which it
asserts to be achievable through the addition of “realisation of human
rights and fundamental freedoms.”648 This preamble, in addition, asserts
that is through an “effective political democracy” and the observance of
human rights that “fundamental freedoms which are the foundation of
justice and peace in the world are best maintained.”649 The European
Convention also invokes uniformity of thought and “heritage of political
traditions,”650 as a foundation for “collective enforcement.”651
In high relief, the preambles of the American Convention on
Human Rights, and the African Charter on Human and Peoples’ Rights
both explicitly reference the very deep relationship between economic
development and human rights.652 Historicity, in the affirmative and in
contrast with the European Convention, displays its hand in both of these
Conventions, but specially so as to the African Charter. The preamble to
African Charter further refers to the process of decolonization, in addition
to economic rights and social rights, construed as rising to the level of
human rights. It specifically reaffirms:
Universal Declaration of Human Rights, G.A. Res. 217 (III) A, U.N. Doc.
A/RES/217(III) (Dec. 10, 1948) [hereinafter UDHR].
647
European Convention, supra note 16, preamble.
648
Id.
649
Id.
650
Id.
651
Id. While the Convention’s references to “like-minded” and “a common heritage of
political traditions” may perhaps appear as too euphemistic a descriptive account of a
“like-minded[ness]” that witnessed two world wars in the twentieth century, as well as a
commonality as to a “heritage of political traditions” that more closely resembles a
mosaic than a monolithic Euclidian plane, the good faith aspirational underpinnings of
the Declaration command respect.
652
The Preamble to the American Convention on Human Rights in pertinent part States:
Considering that the Third Special Inter-American Conference (Buenos
Aires, 1967) approved the incorporation into the Charter of the
Organization itself [the Universal Declaration of Human Rights] of
broader standards with respect to economic, social, and educational
rights and resolved that an inter-American Convention on Human
Rights should determine the structure, competence, and procedure of
the organs responsible for these matters….
American Convention, supra note 13, preamble.
EAST\64724221. 3238
[T]he pledge they [African member States] solemnly made
in Article 2 of the said Charter to eradicate all forms of
colonialism from Africa, to coordinate and intensify their
cooperation and efforts to achieve a better life for the
peoples of Africa and to promote international cooperation
having due regard to the Charter of the United Nations and
the Universal Declaration of Human Rights.653
653
The preamble in its entirety States:
The African States members of the Organization of African Unity,
parties to the present convention entitled ‘African Charter on Human
and Peoples’ Rights’,
Recalling Decision 115 (XVI) of the Assembly of Heads of State and
Government at its Sixteenth Ordinary Session held in Monrovia,
Liberia, from 17 to 20 July 1979 on the preparation of a ‘preliminary
draft on an African Charter on Human and Peoples’ Rights providing
inter alia for the establishment of bodies to promote and protect human
and peoples’ rights’;
Considering the Charter of the Organization of African Unity, which
stipulates that ‘freedom, equality, justice and dignity are essential
objectives for the achievement of the legitimate aspirations of the
African peoples’;
Reaffirming the pledge they solemnly made in Article 2 of the said
Charter to eradicate all forms of colonialism from Africa, to coordinate
and intensify their cooperation and efforts to achieve a better life for
the peoples of Africa and to promote international cooperation having
due regard to the Charter of the United Nations, and the Universal
Declaration of Human Rights;
Taking into consideration the virtues of their historical tradition and the
values of African civilization which should inspire and characterize
their reflection on the concept of human and peoples’ rights;
Recognizing on the one hand, that fundamental human rights stem from
the attributes of human beings which justifies their national and
international protection and on the other hand that the reality and
respect of peoples’ rights should necessarily guarantee human rights;
Considering that the enjoyment of rights and freedoms also implies the
performance of duties on the part of everyone; convinced that it is
henceforth essential to pay a particular attention to the right to
development and that civil and political rights cannot be disassociated
from economic, social and cultural rights in their conception as well as
universality and that the satisfaction of economic, social and cultural
rights is a guarantee for the enjoyment of civil and political rights;
Conscious of their duty to achieve the total liberation of Africa, the
peoples of which are still struggling for their dignity and genuine
independence, and undertaking to eliminate colonialism, neo-
EAST\64724221. 3239
Just as the European Convention on Human Rights must be read within
the context of what is perceived as being one common European history
with shared political values among European States, the African Charter
on Human and Peoples’ Rights needs to be contextualized within the
framework of a history of colonialism, neo-colonialism, and decolonialism. The sustainable development iteration of the public purpose
doctrine too must be embraced as a human rights principle within the
parameters of both the American Convention and the African Charter.
Because the scope and content of the conventional international law of
human rights varies based upon the relevant history and region concerned,
the interface between the public purpose doctrine and international human
rights law also varies. The European Convention’s silence on economic
development cannot be altogether disassociated from the workings of the
public purpose doctrine within the constraints of this Convention.
Moreover, this omission is a testament to the expectations of, at a
minimum, one group of industrialized States with respect to the scope and
content of conventional international human rights law, as well as of the
public purpose doctrine.654
While the European Convention on Human Rights is selective in
its adoption of principles from the United Nations Universal Declaration
of Human Rights, and does not engage in a verbatim incorporation by
reference of this Declaration,655 both the American Convention on Human
colonialism, apartheid, zionism and to dismantle aggressive foreign
military bases and all forms of discrimination, particularly those based
on race, ethnic group, color, sex, language, religion or political
opinions;
Reaffirming their adherence to the principles of human and peoples’
rights and freedoms contained in the declarations, conventions and
other instrument adopted by the Organization of African Unity, the
Movement of Non-Aligned Countries and the United Nations;
Firmly convinced of their duty to promote and protect human and
peoples’ rights and freedoms taking into account the importance
traditionally attached to these rights and freedoms in Africa.
African Charter, supra note 399, preamble.
654
The disparate economic, social, and juridical histories of industrialized and
underdeveloped States also gives rise to materially differing opinions as to the scope and
content of the public purpose doctrine. This dissonance is immediately translated into
different expectations concerning the fundamental relationship between the right to
accord standard protections to foreign investment and regulatory sovereignty, or the right
to regulate. The differences between the conventional international human rights law
between industrialized and non-industrialized States or economies in transition, it is here
asserted, can be directly transposed to the different expectations between industrialized
and underdeveloped States as to the public purpose doctrine.
655
See UDHR, supra note 648.
EAST\64724221. 3240
Rights656 and the African Charter on Human and Peoples’ Rights directly
reaffirm and incorporate by reference the United Nations Universal
Declaration of Human Rights.657 These different perspectival approaches
to international human rights law cannot be altogether severed from their
corresponding understanding of the public purpose doctrine.
The three conventions also represent contrasting conceptions of the
prescriptive foundation of human rights law that may serve to reconcile
different expectations as to the scope and content of human rights and
public purpose. The European Convention on Human Rights speaks of
“fundamental freedoms” deemed to be “the foundation of justice and
peace in the world [that] are best maintained… by an effective political
democracy.”658 In fact, it mentions “human rights and fundamental
freedoms” in the conjunctive.659 This Convention does not present human
rights as being disassociated or completely separate and distinct from the
State. The State, in turn, is an idiosyncratic historical experience. This
“historicity” permeates the Convention’s spirit and technical framework. It
also disavows any pretense of “uniformity among Conventions,” in this
mercurial field. Terms such as “political traditions” and “political
democracy” find prominent spaces in the preamble. The American
Convention and the African Charter represent different fundamental
conceptions of the prescriptive foundation of conventional international
human rights.
The American Convention on Human Rights and the African
Charter on Human and Peoples’ Rights both understand the essential
rights of man classified as “human rights” as not deriving from the State.
The American Convention specifically provides that:
[T]he essential rights of man are not derived from one’s
being a national of a certain State, but are based upon
attributes of the human personality, and that they therefore
justify international protection in the form of a convention
reinforcing or complementing the protection provided by
the domestic law of the American States.660
656
See American Convention, supra note 13, preamble ¶¶ 3-4 (adopting the United
Nations Universal Declaration of Human Rights).
657
See African Charter, supra note 399, preamble ¶¶ 3-4 (adopting the United Nations
Universal Declaration of Human Rights).
658
European Convention, supra note 16, preamble.
659
Id.
660
American Convention, supra note 13, preamble.
EAST\64724221. 3241
Similarly, the African Charter on Human and Peoples’ Rights asserts that:
[F]undamental human rights stem from the attributes of
human beings which justifies their national and
international protection and on the other hand that the
reality and respect of peoples[sic] rights should necessarily
guarantee human rights.661
This unique perspective of human rights as separate and distinct from any
right associated with or deriving from the State—intrinsic to the individual
and not the citizen—represents a considerable departure from the
proposition of that “public purpose” or the “collective good” overrides the
particular interests or well-being of a private individual or interest group.
It is an understanding of rights that does not tend to broaden regulatory
sovereignty. This reasoning comports with the very general proposition
that a State’s obligation to protect individual rights certainly may
outweigh its right to regulate. Thus, it would follow, that a public purpose
doctrine that serves to diminish individual rights in furtherance of the
broadening of the State’s regulatory rights would do violence to a higher
order of principles based upon the individual person, separate and apart
from the State. This prescriptive approach to rights and, therefore, to
obligations, argues in favor of regulatory sovereignty exclusively
predicated on general conceptions on public welfare; thus, to be applied in
conjunction with a subjective (self-judging) standard, such application
should be subordinated to a higher set of norms.
The public purpose doctrine should provide for a more tempered
application accounting for instances where private interests would prevail
over certain matters of State. This conceptualization of the public purpose
doctrine comports with a view of international human rights law as
supporting and supplementing national law and not just serving as a
parallel higher set of rules whose function it is to police the national law of
States. This unique relationship between international human rights law
and the domestic law of States requires a delicate balance. That balance, in
turn, can only be attained where the public purpose doctrine adequately
broadens and constrains the right to regulate, as is the case when State
abuse of the public purpose doctrine may trigger application of
international human rights law.
The European Convention on Human Rights references the public
purpose doctrine three times. The first such mention is found in Article 1
in connection with “the peaceful enjoyment” of possessions and the
proscription against the deprivation of a natural or legal person’s
661
African Charter, supra note 399, preamble.
EAST\64724221. 3242
possessions “except in the public interest and subject to the conditions
provided for by law and by the general principles of international law.”662
The unequivocal Statement of this right is tempered by a recognition of
orthodox regulatory sovereignty premised on the public purpose doctrine
(“general interest”) as the operative talisman. The article’s second
directive notably does not speak to direct or indirect expropriation or
nationalization or actions equivalent to or tantamount to such taking.
Instead, it relies on the word “control” in asserting that the right to
peaceful enjoyment of possession and property “shall not, however, in any
way impair the right of a State to enforce such laws as it deems necessary
to control the use of property in accordance with the general interest or to
secure the payment of taxes or other contributions or penalties.”663 Thus,
“public interest” and “general interest” are identified as precepts that
actually may serve to limit the application of international human rights
law providing for the peaceful enjoyment of possessions and the
fundamental right to property.
Critical to this framework is both a substantive and functional
understanding of the public purpose doctrine. The deprivation of
possessions referenced in the first provision of Article 1 and the control of
the use of property enunciated in the second provision are genuine and
lawful only to the extent that they comport with a legitimate understanding
of the public purpose doctrine. Absent this assumption, Article 1 merely
would be promoting a very general right to property, possession, and
enjoyment of property and possession, subject to an arbitrary and
subjective regime of public purpose to be indiscriminately applied by
States ostensibly pursuant to domestic law in furtherance of orthodox
regulatory sovereignty. This conception, or misconception, of the
workings and interface between the public purpose doctrine and
conventional international human rights law is necessary if in fact the
strictures of cognizable human rights law are ever at all to be applied in
662
European Convention, supra note 16, art. 1 (emphasis supplied). Article 1 (“Protection
of Property”) reads:
Every natural or legal person is entitled to the peaceful enjoyment of
his possessions. No one shall be deprived of his possessions except in
the public interest and subject to the conditions provided for by law and
by the general principles of international law.
The preceding provisions shall not, however, in any way impair the
right of a State to enforce such laws as it deems necessary to control the
use of property in accordance with the general interest or to secure the
payment of taxes or other contributions or penalties.
Id. (emphasis supplied).
663
Id.
EAST\64724221. 3243
defense of individuals against the illegal and unjustified infringement of
such rights by States.664
The second notable reference to the public purpose doctrine in the
European Convention on Human Rights is contained in Article 2
(“Freedom of Movement”). Notwithstanding the four single-sentence
succinct structure of the article, eight public purpose categories are
referenced, including explicit mention of “ordre public” and “public
interest.”665 Structurally, the first two paragraphs set forth an unqualified
Statement of the right to freedom of movement both within the territory of
a State and to leave any country, including a citizen’s own national
State.666 As with Article 1 (“Protection of Property”), the public purpose
doctrine is central to the theoretical and practical viability of the right to
freedom of movement. The only constraints on the right are the two
iterations of the public purpose doctrine (ordre public and public interest)
and the six public purpose categories otherwise comprising the article.
664
Even though the first provision of Article 1 concerning an actual deprivation of
possessions, in contrast with “control” of the use of property in the second provision of
the Article, does not mention the right to compensation or the loss of property to the
State, it may well do so as a matter of treaty construction by dint of referencing the
qualifying clause, “subject to the conditions provided for by law and by the general
principles of international law.” As a matter of general public international law, a taking
of property directly or as a result of a series of regulatory measures, cannot be lawfully
effectuated without compensation. At issue in the juridical dialog on this question is the
formula determining compensation, i.e., prompt, adequate and effective compensation
(the Hull formula), fair and adequate compensation or fair market value as the governing
remedy.
665
Article 2 (“Freedom of Movement”) States:
1. Everyone lawfully within the territory of a State shall, within that
territory, have the right to liberty of movement and freedom to choose
his residence.
2.
Everyone shall be free to leave any country, including his own.
3. No restrictions shall be placed on the exercise of these rights other
than such as are in accordance with law and are necessary in a
democratic society in the interest of a national security or public safety,
for the maintenance of ordre public, for the prevention of crime, for the
protection of health or morals, or for the protection of the rights and
freedoms of others.
4. The rights set forth in paragraph 1 may also be subject, to
particular areas, to restrictions imposed in accordance with law and
justified by the public interest in a democratic society.
European Convention, supra note 16, art. 2.
666
Id. art. 2 ¶¶ 1-2.
EAST\64724221. 3244
Without being contextualized as public purpose categories that may find
substantive definition within the public purpose doctrine as expressed in
conventional or customary international law, the broad scope and thematic
content would render the unqualified right to freedom of movement
enunciated in Paragraphs 1 and 2 meaningless. Specifically, the six public
purpose categories—(i) “the interest of national security,”667 (ii) “the
interest of…public safety,”668 (iii) “for the prevention of crime,”669 (iv)
“for the protection of health,”670 (v) “for the protection of…morals,”671
and (vi) “for the protection of the rights and freedoms of others”672—are
simply too expansive to engraft any meaningful constraints on these
categories. Absent an objective standard for application and a substantive
rubric pervaded by the tempering effects of proportionality, the public
purpose categories would nearly invite abuse derived from the right to
regulate. Moreover, as is the case with Article 1, the triggering of the
right’s protection becomes problematic where, as here, the governing
standard (the six public purpose categories) turns out to be allencompassing.
The conceptual problems stemming from a legacy public purpose
approach to Article 2 is compounded because “the maintenance of “ordre
public”673 is also found in the very midst of the public purpose categories.
The maintenance of the ordre public cannot be challenged, particularly
within the anatomy of a self-judging framework. It would be eminently
plausible to posit that any act that a State undertakes is susceptible to
being characterized as representing a measure in furtherance of the
maintenance of the ordre public, irrespective of subject matter
consideration. Also, the six public purpose categories in Paragraph 3 can
all be categorized as falling within the ambit of ordre public.
The last quarter of this symmetrically structured article, first
advancing two pronouncements pertaining to one right followed by two
sets of qualifications limiting application of that same right, explicitly
invokes “public interest.”674 Here the right to freedom of movement, in a
667
Id. art. 2 ¶ 3.
668
Id.
669
Id.
670
Id.
671
Id.
672
Id.
673
Id.
674
Id. art. 2 ¶ 4.
EAST\64724221. 3245
grammatically efficient sentence authored by the conjunctive “and,”
asserts that this fundamental right “may also be subject, in particular areas,
to restrictions imposed in accordance with law and justified by the public
interest in a democratic society.” 675 Arguably, the public interest
675
Id. (emphasis supplied). The term “democratic society” is nowhere defined. The
collected edition of the Travaux Preparatoires of Protocol No. 4 to the Convention
suggests that the term was imported from the United Nations International Convention on
Civil and Political Rights. See generally International Covenant on Civil and Political
Rights, G.A. Res. 2200, U.N. GAOR, 21st Sess., Supp. No. 16, at 56, U.N. Doc. A/6316
(1966). Furthermore, the work of Sub-committee No. 12 reflects that the first draft did
not include the term “democratic society,” providing:
In this form Article 2 showed the following differences by comparison
with the corresponding provision in the text finally adopted by the
Assembly:
a) Definition of the rights protected came after the Statement of
restrictions to their exercise;
b) The restrictions were to be governed by ‘any general law’ whereas
the final text refers to
‘law’;






The restrictions had to be ‘reasonable’: this condition is not
mentioned in the final text;
The restrictions were to be ‘necessary to protect’ a number of
interests listed, but the text did not define such necessity as that
existing “in a democratic society.”
The following inherent necessities were not listed among the
restrictions:
The economic welfare of the country;
The maintenance of law and order;
The prevention of crime.
COUNCIL OF EUROPE, COLLECTED EDITION OF THE “TRAVAUX PREPARATOIRES” OF
PROTOCOL NO. 4 TO THE CONVENTION, SECURING CERTAIN RIGHTS AND FREEDOMS
OTHER THAN THOSE ALREADY INCLUDED IN THE CONVENTION AND IN THE FIRST
PROTOCOL
THERETO,
at
176
(Strasbourg
1976),
available
at
http://www.echr.coe.int/library/DIGDOC/Travaux/ECHRTravaux-P4-BIL2907919.pdf
(emphasis supplied) [hereinafter Travaux Preparatoires to Protocol No. 4]. Moreover, the
preparatory work follows with an explanatory memorandum, which reads, in pertinent
part:
Article 2 of the draft reproduces paragraph 1 of Article 12 of the Draft
International Covenant on Civil and Political Human Rights, Apart
from the Following Amendments:
a)
This Article has been re-worded to bring it into line with most of
the Article’s in Section I of the Convention on Human Rights.
Thus the rights in question are defined in the first paragraph, while
the second paragraph sets out the permitted restrictions to the
application of those rights.
EAST\64724221. 3246
qualification in Paragraph 4 both encompasses and exceeds conceptual
restraints on the right enunciated in Paragraph 3. Independent of this
possible construction, but within the framework of the right to freedom of
movement, it is the public purpose doctrine that serves as the single
qualification to the exercise of this coveted right. The doctrine limits
exercise of the right and empowers a right to regulate that may infringe or
altogether eviscerate this right so long as the regulation also comports
“with law.”676 Accordingly, the presence of the doctrine in the Article (and
the Convention for that matter) only is dwarfed by the daunting task that it
is asked to perform.
Article 2 raises additional complexities for the public purpose
doctrine that merit reference but cannot be addressed within the scope of
this effort, which is limited to understanding the nature of the evidence
supporting the public purpose doctrine as part of customary international
law and the scope of such a principle. In contrast with Article 1, Article 2
of the European Convention mentions the term “democratic society,” and
does so twice.677 The public purpose categories, including the ordre
public, are themselves qualified by the term “democratic society.” It is
thus suggested that, at least for purposes of Article 2 (“Freedom of
Movement”), there is a public purpose endemic to a “democratic society”
that rises to the level of a qualifying factor as to a human rights norm. The
“democratic society” realm within which the public purpose doctrine may
rise to the level of engrafting constraints on the freedom of movement
human rights norm bespeaks a normative connection between a
democratically organized geopolitical subdivision and the substantive
content of the public purpose doctrine. It is only in conformance with this
connection that the public purpose necessary within a democratically
structured society may give rise to an application of the doctrine that may
normatively justify curtailing so fundamental a right as freedom of
movement. It is less clear why the “democratic society” term is found in
Article 2 in relation to public purpose, but not at all in Article 1, which
qualifies the right to possession and enjoyment of property on “public
interest,” much as Paragraph 4 of Article 2 resorts to “public interest” in
limiting the freedom of movement. The relationship between a
“democratic society” and public purpose as a prescriptive foundation for
limiting freedom of movement is perhaps an explicit acknowledgement
c)
On the other hand, in the draft Protocol, the second paragraph
stipulates that the restrictions permitted would be those which are
‘necessary in a democratic society’.
Id. at 178-79 (emphasis supplied).
676
Id.
677
European Convention, supra note 16, art. 2 ¶¶ 3-4.
EAST\64724221. 3247
that the legacy public purpose doctrine—itself enjoying only general
content that is ill-defined and having its application based on a selfjudging standard—can only function where the rule of law endemic to a
democratic society pervades the very doctrine’s content.
Limiting application of the public purpose doctrine as a principle
of law that empowers States to limit the right of movement based upon a
higher norm in the form of regulatory sovereignty perhaps may only be
entrusted to democratic societies where peoples’ right to move within the
national territory and to leave the national territory can only be
subordinated to a public purpose that finds expression within a
democratically organized society. Even though the European Convention
on Human Rights presumably is comprised of European States that are
politically democratic, the drafters, negotiators, and signatories very
implicitly proscribed non-democratic signatories from restricting domestic
or international travel.678
But for the use of the public purpose doctrine in Articles 1 and 2,
the balance of the Convention only once references public purpose, and
fleetingly at that.679
The American Convention on Human Rights “PACT of San José,
Costa Rica,” like the European Convention, also uses the term
“democratic society.” The term appears only on three occasions.680 These
scant appearances throughout the eighty-two-article convention are
connected to explicit references to the public purpose doctrine in a manner
similar to that of the European Convention. The select use of the term in
tandem with public purpose suggests an express intent by the drafters and
signatories to limit a State’s use of the doctrine in placing limits on
fundamental freedoms of movement, assembly, and association only to
nations that have embraced democratic principles of governance.
678
See supra note 677 & accompanying text.
679
Protocol No. 7 to the Convention for the Protection of Human Rights and
Fundamental Freedoms in Article 1 (“Procedural safeguards relating to the expulsion of
aliens”), paragraph 2, States:
2. An alien may be expelled before the exercise of his rights under
paragraph 1.a, b and c of this Article, when such expulsion is necessary
in the interests of public order or is grounded on reasons of national
security.
Euro. Conv. Protocol 7, supra note 394, art. 1 ¶ 2 (emphasis supplied).
680
See American Convention, supra note 13, Article 15 (“Right of Assembly”), Article
16 (“Freedom of Association”), and Article 22 (“Freedom of Movement and
Residence.”).
EAST\64724221. 3248
The movement, residence, assembly, and association of citizens is
fundamental to social conditions that may give rise to a democratic society
and to the perpetuation of democratic rule. Studious “democratic society”
limitation on the exercise of the public purpose doctrine, as evident from
the European Convention and the American Convention, exists due to the
need to fashion a public purpose doctrine that eliminates or may
substantially mitigate the likelihood of “legitimate abuse” by States hiding
behind a “right to regulate” that is only formally (not substantively)
legitimate. This sporadic particular linking of the term “democratic
society” with public purpose also supports the broader propositions that:
(i) application of the doctrine should be subject matter specific; (ii)
specific circumstances warrant a limit on State application of the doctrine;
and (iii) limits on a State’s recourse to the doctrine to infringe on
established and protected rights should be subject to an objective standard,
such as, i.e., a “democratic society.” As to this latter premise, what
constitutes a “democratic society” within the confines of the signatories to
the American Convention becomes an inevitable query.681
681
A number of Latin American countries—most notably Ecuador, Bolivia, and
Venezuela—while formally purporting to subscribe to the rule of law and the majesty of
the democratic process have instead substantively expanded the powers of the executive
branch to the detriment of the judicial and legislative branches. In some instances, the
executive branch has pronounced that the judiciary must subordinate juridical analysis
and the rule of law to “revolutionary principles” or the “best interests of the revolution.”
Similarly, process legitimacy has been abused in furtherance of the promulgation of
constitutional amendments that have the single purpose of perpetuating the head of State.
In these “democracies” fundamental freedoms such as human rights and the right to
assembly have been altogether eviscerated. See generally ALLAN R. BREWER-CARÍAS,
DISMANTLING DEMOCRACY IN VENEZUELA: THE CHÁVEZ AUTHORITARIAN EXPERIMENT
(Cambridge University Press 2010). Brewer-Carías argues that the influence of the
Venezuelan executive branch has trumped any checks and balances with respect to the
judicial and legislative branches. Four fundamental propositions pervade the text. First,
despite the ostensible semblance of democracy, Brewer-Carías argues that:
The 1999 Constituent Assembly was, then, the instrument the President
used to dissolve and interfere in all branches of government
(particularly the judiciary) into dismissal, public officials who had been
elected just a few months earlier in November 1998: namely, the
representatives to the National Congress, the State legislative
assemblies, and the municipal councils, as well as the State governors
and municipal mayors. The sole exception to this interference was the
President of the Republic itself, precisely the author of the
constitutional fraud, whose tenure was not affected. In addition, the
Constituent Assembly interfered in all other branches of government,
particularly in the judiciary, whose autonomy and independence was
progressively and systematically demolished. The result was tight
executive control over the judiciary, particularly regarding the newly
appointed Supreme Tribunal of Justice whose Constitutional Chamber
has been the most the ominous instrument for consolidating
authoritarianism in the country.
EAST\64724221. 3249
Id. at 13 (internal citations omitted). Second, Brewer-Carías further observes:
Article 17 of the transitory regime decree also provided for the
termination of the Supreme Court of Justice to give way to the Supreme
Tribunal of Justice, even if the Constitution that created it was not still
in force. (It was published on Dec. 30, 1999). For such purpose, the
three chambers of the former Supreme Court of Justice (politicaladministrative, criminal, and civil cassation) were extinguished and its
magistrates dismissed.
Id. at 76. Third, as to the legislative branch, Brewer-Carías chronicles that the interior
regulations of the Assembly were openly manipulated and reformed in 2003 and 2004 to
allow the incorporation of deputies without formal requirement and to allow the
Assembly to annul its own previous decisions by simple majority. Sessions of the
Assembly were held outside the Parliament official headquarters, in public spaces, to
prevent the participation of opposition representatives because of violent threats from the
so-called Bolivarian circles. The provisions of the Constitution guaranteeing
representatives the right to vote according to their conscience has never been enforced,
and never during the past decade have representatives been accountable to their
constituency, as provided for in the Constitution. Id. at 395.
Fourth, Brewer-Carías contends that essential elements of democratic elections set forth
in the Inter-American Democratic Charter, such as “periodic, free and fair elections based
on secret balloting and universal suffrage that expression of the sovereignty of the
people,” have never formed part of “Venezuelan democracy” under President Chávez’s
administration. Id. at 397. See also Frank M. Walsh, The Legal Death of the Latin
American Democracy: Bolivarian Populism’s Model for Centralizing Power, Eliminating
Political Opposition, and Undermining the Rule of Law, 16 L. & BUS. REV. AM. 241
(2010).
A strong argument regarding the substantive dissonance present between the appearance
of democratic rule and the actual rule of law can be found in the Expert Report of
Vladimiro Álvarez Grau recently filed in the Southern District of New York in Chevron
Corporation and Texaco Petroleum Company v. The Republic of Ecuador, where Grau
States that, in his opinion:
Ecuador’s problem is that since 2004 the Government has continually
violated the rule of law. It is my conviction that under President Correa,
the country is experiencing a severe institutional crisis. If the
Government and certain politicians do not stop influencing the
decisions of the Courts and Tribunals, the fact that today there is no
independence in the administration of justice will not change. The
judiciary can no longer act impartially and with integrity, and is instead
subject to constant pressure and threats that influence its decision.
2010 WL 6380602, at * (S.D.N.Y. Sept. 2, 2010) (Expert Report and Affidavit); see also
International Bar Association, Ecuador: Un Análisis Sobre la Independencia de la
Función
Judicial
(June
2005),
http://www.ibanet.org/Document/Default.aspx?DocumentUid=6a00e1fb-6974-41bca2bb-479f37b5f65c. As to Bolivia, see International Bar Association, Justicia Denegada:
La Apremiante Necesidad de Implementar una Reforma Significativa en el Sistema
Judicial
de
Bolivia
(Aug.
2006),
http://www.ibanet.org/Document/Default.aspx?DocumentUid=DFCA2074-046A-422C94A2-68FF1AA49C3E. The IBA’s report concludes that there is no separation between
EAST\64724221. 3250
The public purpose doctrine is fundamental to the American
Convention’s framework. It is the organizing principle of six of its
articles.682 Article 12 (“Freedom of Conscience and Religion”) is
constituted by four single-sentence paragraphs. The first two paragraphs
assert the right and its scope, while the symmetrical balance of the
paragraphs deliberately articulate limitations on the right.683 Aside from
the right accorded to parents or guardians to impart “religious and moral
education [to] their children or wards that is in accord with their own
convictions,”684 the single limitation to the right of freedom of conscience
and religion is in the form of the public purpose. The doctrine, in the form
of (i) “public safety,” (ii) “public order,” (iii) “public health,” and (iv)
“morals,” is the single normative constraint on this fundamental
freedom.685 Similarly, the doctrine expressed as in the form of (i) “national
security,” (ii) “public order,” (iii) “public health,” and (iv) “public
morals,” is identified as the principal possible limitation on the freedom of
thought and expression together with “respect for the rights or reputation
the legislative and the executive branches of power in Bolivia. Moreover, judicial process
lacks transparency and independent authority in the administration of justice.
682
See American Convention, supra note 13, art. 12 (“Freedom of Conscience and
Religion”), art. 13 (“Freedom of Thought and Expression”), art. 15 (“Right of
Assembly”), art. 16 (“Freedom of Association”), art. 21 (“Right to Property”), and art. 22
(“Freedom of Movement and Residence”).
683
Article 12 (“Freedom of Conscience and Religion”) of the American Convention of
Human Rights States:
1. Everyone has the right to freedom of conscience and of religion.
This right includes freedom to maintain or to change one’s religion or
beliefs, and freedom to profess or disseminate one’s religion or beliefs,
either individually or together with others, in public or in private.
2. No one shall be subject to restrictions that might impair his
freedom to maintain or to change his religion or beliefs.
3. Freedom to manifest one’s religion and beliefs may be subject only
to the limitations prescribed by law that are necessary to protect public
safety, order, health, or morals, or the rights or freedoms of others.
4. Parents or guardians, as the case may be, have the right to provide
for the religious and moral education of their children or wards that is
in accord with their own convictions.
Id. art. 12.
684
Id. art. 12 ¶ 4.
685
Id. art. 12 ¶ 3.
EAST\64724221. 3251
of others.”686 The application of the doctrine, however, pursuant to Article
13(2)(a)-(b) is limited to the imposition of liability and not censorship.
This application of the doctrine is instructive because it does not represent
an absolute exception but rather one that is qualified and, in this limited
regard, supports the broader principle that application of the public
purpose doctrine may be such so as to avoid an “all or nothing” result. A
compromising and qualified outcome bespeaks proportionality. Imposition
of liability in lieu of absolute censorship comports with a “proportionality”
approach to the otherwise absolute public purpose exception.687 This
contribution is an important one within the framework of identifying the
existence and scope of a public purpose doctrine within the framework of
customary international law.
The modified (proportional) approach to the application of the
doctrine within the context of the fundamental human right of freedom of
thought and expression is also evinced in Article 13(4). This provision
provides that:
Notwithstanding the provisions of paragraph 2 above,
public entertainments may be subject by law to prior
censorship for the sole purpose of regulating access to them
for the moral protection of childhood and adolescence.688
The application of the doctrine to a “special class” represents yet another
technique pursuant to which the principle may be applied in ways that are
absolute but only where such rigor in turn is compelled and justified by
the subject matter at issue, in this case “the moral protection of childhood
and adolescence” within the narrow category of “public entertainments.”
686
Article 13 (“Freedom of Thought and Expression”) establishes this public purpose
qualification on this right, providing in relevant part:
2. The exercise of the right provided for in the foregoing paragraph
shall not be subject to prior censorship but shall be subject to
subsequent imposition of liability, which shall be expressly established
by law to the extent necessary to ensure:
a. respect for the rights or reputations of others; or
b. the protection of national security, public order, or public
health or morals.
Id. art. 13 ¶ 2(a)-(b).
687
.The principle of proportionality finds ample support in the context of international
human rights law. See discussion of the jurisprudence of the European Court of Human
Rights infra Chapter 3.A(3).
688
American Convention, supra note 13, art. 13 ¶ 4 (emphasis supplied).
EAST\64724221. 3252
As previously discussed,689 the American Convention readily
avails itself of the public purpose doctrine albeit within the context of
States that may be described as having “a democratic society” with respect
to the four essential rights that are migratory or of movement: (i) Article
15 (“Right of Assembly”); (ii) Article 16 (“Freedom of Association”); (iii)
Article 22 (“Freedom of Movement”); and (iv) Article 22 (“Freedom of
Residence”). In all four of these rights the language expressed in the
Convention is materially indistinguishable.690
Much like Article 1 (“Protection of Property”) of the European
Convention on Human Rights, Article 21 (“Right to Property”) of the
American Convention on Human Rights also speaks to “enjoyment” of
property but not to “ownership.” As to “enjoyment,” the second sentence
of the first paragraph asserts that “[t]he law may subordinate such use and
enjoyment to the interest of society.”691 Ownership is implicit in the
qualification to the right to property in the negative (deprivation of a
person’s property) based upon “payment of just compensation” and “for
reasons of public utility or social interest.”692 A third amorphous
qualification on the otherwise unbridled right to property appears in the
689
See supra note 677 & accompanying text.
690
As to Article 15 (“Right of Assembly”), the qualifying language provides that:
No restrictions may be placed on the exercise of this right other than
those imposed in conformity with the law and necessary in a
democratic society in the interest of national security, public safety or
public order, or to protect public health or morals or the rights or
freedom of others.
American Convention, supra note 13, art. 15. The qualification asserted in Article 16
(“Freedom of Association”) States that:
The exercise of this right shall be subject only to such restrictions
established by law as may be necessary in a democratic society, in the
interest of national security, public safety or public order, or to protect
public health or morals or the rights and freedoms of others.
Id. art. 16. Finally, the Article 22 (“Freedom of Movement and Residence”)
restriction States that:
The foregoing rights may be restricted only pursuant to a law to the
extent necessary in a democratic society to prevent crime or to protect
national security, public safety, public order, public morals, public
health, or the rights or freedoms of others.
Id. art. 22.
691
Id. art. 21 ¶ 1.(emphasis supplied).
692
Id. art. 21 ¶ 2.
EAST\64724221. 3253
form of language providing “in the cases and according to the forms
established by law.”693
A.
Public Purpose Doctrine as a Fulcrum for a Hierarchy of
Human Rights
The select application of the doctrine throughout the European
Convention, as well as the American Convention on Human Rights,
suggests that there exists an unStated hierarchy of human rights.694 Thus,
whether pursuant to the public purpose doctrine or a matter of “State
emergency,” certain rights cannot be suspended or otherwise modified
without delegitimizing the particular human rights convention in its
totality. It is certainly beyond man’s wit to conceive of a public purpose,
public danger, or a State of necessity that could justify infringement on the
right to freedom from slavery, the right to humane treatment, or the right
to life, to mention only three such rights that happen to be contained in the
American Convention.695 Conceptual and analytical support for the
proposition that the public purpose doctrine, at least in its legacy iteration,
must have subject matter limitations, is also certainly provided for in the
human rights context in Article 27 (“Suspension of Guarantees”) of the
American Convention. This provision is tasked with balancing the
protection of fundamental human rights against the rights of States to
regulate in times of crises, i.e., the most extreme expression of the public
purpose doctrine: State emergency. Article 27 in part States:
In time of war, public danger, or other emergency that threatens the
independence or security of a State Party, it may take measures derogating
693
Id. As to compensation, this provision appears to codify a very general Statement of
the broad principle of customary international law providing that a nationalization or
expropriation, a direct or indirect nationalization or expropriation, or an infringement on
property that is tantamount or the equivalent to a direct or indirect expropriation or
nationalization is contrary to law where compensation for the taking does not ensue.
Article 21 specifically references “payment of just compensation.” Id. This element of the
provision is less settled even in general terms as a matter of customary international law.
There is considerable authority for compensation to be legally sufficient if payment is
made in a form that is “prompt, adequate, and effective compensation” (the “Hull
formula”). See , e.g., Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 429 (1963).
Equally authoritative sources hold that compensation should reflect fair market value.
See, e.g., NAFTA, supra note 3, art. 1110 ¶ 2. A third line of authority suggests that “fair
and just compensation” is sufficient. See generally United Nations Conference on Trade
& Development, Taking of Property, U.N. Doc. UNCTAD/ITE/IIT/15, U.N. Sales No.
E.00.II.D.4 (2000).
694
See generally Tom Farer, The Hierarchy of Human Rights, 8 AM. U.J. INT’L L. &
POL’Y 115 (1991).
695
See, e.g., American Convention, supra note 13, art. 4 (“Right to Life”), art. 5 (“Right
to Humane Treatment”), and art. 6 (“Freedom from Slavery”).
EAST\64724221. 3254
from its obligations under the present Convention to the extent and for the
period of time strictly required by the exigencies of the situation, provided
that such measures are not inconsistent with its other obligations under
international law and do not involve discrimination on the ground of race,
color, sex, language, religion, or social origin.
The foregoing provision does not authorize any suspension of the
following articles: Article 3 (Right to Juridical Personality), Article 4
(Right to Life), Article 5 (Right to Humane Treatment), Article 6
(Freedom from Slavery), Article 9 (Freedom from Ex Post Facto Laws),
Article 12 (Freedom of Conscience and Religion), Article 17 (Rights of
the Family), Article 18 (Right to a Name), Article 19 (Rights of the Child),
Article 20 (Right to Nationality), and Article 23 (Right to Participate in
Government), or of the judicial guarantees essential for the protection of
such rights.696
Even a surface reading demonstrates that in a very fundamental
way, no general public good can outweigh any of the eleven enumerated
rights: (i) the right to juridical personality; (ii) the right to life; (iii) the
right to humane treatment; (iv) the right to freedom from slavery; (v) the
right to freedom from ex post facto laws; (vi) the right to freedom of
conscience and religion; (vii) the rights of the family; (viii) the right to a
name; (ix) the rights of the child; (x) the right to nationality; and (xi) the
right to participate in government. To the contrary, the public purpose
doctrine, even amidst the most extreme expression of national necessity,
exists for purposes of ensuring conditions so that fundamental rights of
this nature may exist, develop, and prosper. Subject matter limitation on
the public purpose doctrine represents a meaningful contribution to
international human rights law. It is equally a contribution to the
customary international law development of a public purpose doctrine
comparable in significance only to examples of instances where the
qualified application of the doctrine leads to more than just a mere
semblance of proportionality between the public purpose asserted and the
extent to which the right at issue is at all altered.
1.
The African Charter on Human and Peoples’ Rights
The African Charter on Human and Peoples’ Rights, consonant
with the European Convention on Human Rights, and the American
Convention on Human Rights, asserts fundamental human rights to
assembly and movement within the national territory and to travel beyond
the country subject to law or restrictions arising from an expansive public
purpose doctrine. As to the right of assembly, the African Charter on
Human and Peoples’ Rights (“the African Charter”) provides that, while
696
Id. Ch. IV (“Suspension of Guarantees”) art. 27.
EAST\64724221. 3255
every individual has the right “to assemble freely with others,” this right
may be restricted “by law in particular those enacted in the interest of
national security, the safety, health, ethics and rights and freedoms of
others.”697 The right to freedom of movement and residence within the
borders of a State is qualified only by the imperative obligating
individuals to abide by law. Here, the constraint on the human right to
freedom of movement and residence is considerably broader, and certainly
having greater predictive value, than the strictly public purpose doctrine
qualification on the right contained in the European and American
conventions on human rights.698 The right to leave a country, including an
individual’s own nation, is subject to a much broader, less transparent,
more predictable constraint in the form of a public purpose doctrine than
the right to freedom of movement and residence also asserted in Article
12.699 The inclusion of public purpose categories such as health, morality,
order, and national security, provides the “right to regulate” with
considerable analytical premises with which to infringe upon the human
right to leave any country including a person’s own country.
In sharp contrast with the European and American Human Rights
Conventions, the African Charter does not distinguish between
“democratic society” and a non-democratic society in qualifying States
that may restrict the fundamental freedoms of (i) movement, (ii) residence,
and (iii) the right to leave any country including an individual’s own
nation.
The African Charter also identifies the right to property, without
reference to ownership, taking, deprivation of possessions, or
compensation as an element incident or attendant to any type of taking of
property.700 The right to property also does not reference “use or
697
African Charter, supra note 399, art. 11.
698
Id. art 12 ¶ 1.
699
Article 12 of the African Charter provides:
1. Every individual shall have the right to freedom of movement and
residence within
the borders of a State provided he abides by the law.
2. Every individual shall have the right to leave any country including
his own, and to return to his country. This right may only be subject to
restrictions, provided for by law for the protection of national security,
law and order, public health or morality.
700
Article 14 of the African Charter provides:
The right to property shall by guaranteed. It may only be encroached
upon in the interest of public need or in the general interest of the
community and in accordance with the provisions of appropriate laws.
EAST\64724221. 3256
enjoyment” and provides that such right “may only be encroached”701
based upon “interest of public need” or the “general interest of a
community.”
The importance of the public purpose doctrine within the meaning
of Articles 11, 12, and 14 of the African Charter is considerable. Its select
and somewhat studious presence is testimony to the doctrine’s central
importance and not to a classification of its rule as a secondary precept in
the Charter’s mechanics. The doctrine is treated equally and in tandem
with the obligation to follow the law as the only restrictions on any
freedom contained in the Charter’s entirety.702
The Charter recognizes a right that does resemble the sustainable
development expression of the public purpose doctrine discussed in
Chapter 2, Section E. The principle, however, is Stated as a right and not
as an exception to a right that justifies exercise of regulatory sovereignty
to the detriment of obligations running from the State to individuals.
Because, however, the Charter speaks of the “right to development” in
individual and particular terms, a selective or “public” right to
development conceptually provides normative support for its use as a
constraint on protection obligations that a State may owe to private natural
or juridical persons. Thus, broad as this “sustainable development”
individual and collective human right may be, its public purpose doctrine
counterpart in the form of an exception legitimizing the right to regulate
would be broad and problematic, as we have found the sustainable
development public purpose expression to be.703 Reading “right to
Id. art. 14.
701
Id.
702
The only restrictions on human rights contained in the Charter are exceptions based on
either the public purpose doctrine, or in compliance with law. See id. art. 6; art. 9 ¶ 2; art.
10 ¶ 1; art. 11; art. 12 ¶¶ 1-2; art. 14. Notably, in contrast with the European Convention
on Human Rights and the American Convention on Human Rights, the right of
association prescribed in the Charter under Article 10(1) cannot be modified under the
public purpose doctrine, but only on the ground of non-compliance with the law. Id. art.
10 ¶ 1.
703
The collective and individual “sustainable development” iteration of a human right
rather than an exception to the right to regulate is set forth in Article 22(2). Paragraph 1
of this article helps contextualize the “right to development.” Article 22 reads:
1. All peoples shall have the right to their economic, social and
cultural development with due regard to their freedom and identity and
in the equal enjoyment of the common heritage of mankind.
2. States shall have the duty, individually or collectively, to ensure
the exercise of the right to development.
Id. art. 22 ¶¶ 1-2.
EAST\64724221. 3257
economic development” into the “right to development” is not too much of
a conceptual indiscretion where a collective right to development also is at
stake.
Just as Article 22(2) of the Charter suggests a relationship with the
sustainable development expression of the public purpose doctrine
exception to the right to regulate, Article 21(4)-(5) analogously expresses
a right comparable to the permanent sovereignty over natural resources
exception that is typically relied upon by Host States to challenge longterm exploration and exploitation contracts entered into with industrialized
States.704 The human right expressed in Paragraphs 4 and 5 of Article 21
has both an individual and a collective character, but the individuality and
collectivity applies to State parties acting on behalf of their citizenries
with respect to wealth and natural resources.705
The African Charter thus materially distinguishes itself from the
anatomy and content of the European and the American Conventions. The
Charter’s very name speaks to “human and peoples’ rights.” Paragraphs 4
and 5 of Article 21 of the African Charter specifically reference “[s]tates
parties to the present Charter”; thus, this “human” right is one attaching to
States (i) for the protection of its citizens, (ii) against other States, and (iii)
only against the State of which individuals are citizens to the extent that
such sovereign acts against its own right to explore, exploit, and dispose of
its wealth and natural resources.706 Consonant with Article 21 generally
704
The doctrine of permanent sovereignty over natural resources is addressed in Chapter
5 of this text.
705
See African Charter, supra note 399, art. 21 ¶ 4.
706
Article 21 of the African Charter States:
1.
All peoples shall freely dispose of their wealth and natural
resources. This right shall be exercised in the exclusive interest of
the people. In no case shall a people be deprived of it.
2.
In case of spoliation the dispossessed people shall have the right to
the lawful recovery of its property as well as to an adequate
compensation.
3.
The free disposal of wealth and natural resources shall be exercised
without prejudice to the obligation of promoting international
economic cooperation based on mutual respect, equitable exchange
and the principles of international law.
4.
States parties to the present Charter shall individually and
collectively exercise the right to free disposal of their wealth and
natural resources with a view to strengthening African unity and
solidarity.
EAST\64724221. 3258
and Paragraphs 4 and 5 in particular, the public purpose doctrine of
permanent sovereignty over natural resources—generally invoked as an
exception justifying exercise of a right to regulate in such a manner as to
limit obligations extending to foreign investors—finds robust resonance in
the African Charter. It is present as both an affirmative human right
ultimately held by citizens and also by States in the form of both a right
that presumably may be asserted by an individual against his own nation,
and as an exception raised by a State against infringement on the
exploration, exploitation, and disposal of wealth and natural resources by a
foreign State, presumably notwithstanding international contracts
providing for foreign access to the resources falling within the purview of
Article 21.
Construed together, States and their citizens possess a human right
to development that extends to exploration, exploitation, and disposition
of wealth and natural resources. This right, presumably premised on the
highest public interests of individuals and peoples, is intended to
safeguard the use of wealth and natural resources of States. Pursuant to the
most conventional paradigm, the Article 22 “right to development” and
the Article 21 “wealth and natural resources” principles are used by States
to justify the right to regulate in disavowance of rights arising from
treaties and other international instruments, often to the detriment of
foreign investors/investments. A second and less conventional paradigm
would be recourse to these principles by individuals against their own
governments for purposes of denouncing in international super-State fora,
unconstitutional or illicit disposition of resources by regimes that are
impervious to the rule of law, and the legitimate public interest of its own
citizenry. This latter scenario most commonly takes place where States
engage, for example, in the illicit privatization of strategic resources.
While this activity regrettably can hardly be characterized as rare or
sporadic, the denouncement of such abuses by corrupt regimes on the part
of private citizens most commonly is fraught with insurmountable
challenges.707
The African Charter exemplifies perhaps the broadest expression
of the use of the public purpose doctrine within the framework of the three
human rights conventions analyzed. It shares with the European
5.
States parties to the present Charter shall undertake to eliminate all
forms of foreign economic exploitation particularly that practiced
by international monopolies so as to enable their peoples to fully
benefit from the advantages derived from their national resources.
Id. art. 21.
707
The entrenchment of those only formally purporting rather to subscribe to rule of law
in Latin America despite ongoing opposition is demonstrative of the difficulties inherent
in denouncing such a regime. See supra note 683.
EAST\64724221. 3259
Convention and the American Convention the use of the doctrine in the
context of property-related human rights. It also features the doctrine in
the context of human rights concerning the right to assemble, the right to
freedom of movement, and the right to leave any country (including one’s
own). As to these specific rights, however, in contrast with the European
and American Conventions, the African Charter does not distinguish
between democratic and non-democratic societies as a predicate to
exercise of the doctrine by a State in ways that may infringe upon or
altogether eviscerate such rights. Also, the African Charter speaks to the
rights of “peoples” and “State Parties” in connection with expressions of
the public purpose doctrine that merges the doctrine into both affirmative
human rights and regulatory exception categories in contrast with the
European and American Conventions. Specifically, the sustainable
development and permanent sovereignty over natural resources
expressions of the public purpose doctrine are codified by the African
Charter as “human rights and peoples’ rights.” In this connection, it vastly
amplifies the doctrine as to entities in which the doctrine vests (States and
private individuals) and the very doctrine’s scope.
2.
The Findings and Effects of the European and
American Human Rights Conventions, and the African
Charter on the Customary International Law
Development of the Public Purpose Doctrine.
International human rights law applies to the public purpose
doctrine even though it never defines it. Its contribution to public purpose
in customary international law is quite meaningful. Based upon the three
conventions analyzed, it is evident that the public purpose doctrine is
central to international human rights law despite the paucity of
international instruments and writings purporting to establish the
connection between the doctrine and the workings of international human
rights customary and conventional law. Generally, the public purpose
doctrine serves to amplify the scope of States’ right to regulate to the
detriment of its legal obligation to protect foreign investors/investments.
International human rights law represents a constraint on States’ right to
regulate, and in this sense operates as a constraint on the exercise of
orthodox sovereignty.708 The public purpose doctrine bolsters additional
sovereignty paradigms by enhancing regulatory sovereignty in its most
traditional form.
Although seemingly at odds with respect to their respective
relationship to conventional notions of regulatory sovereignty, as well as
to the manner in which the doctrine and international human rights serve
individuals and States, the two are inextricably interdependent.
708
See supra at Chapter 3.A.
EAST\64724221. 3260
International human rights does not purport to displace or modify national
or municipal law, which in turn rests on the public purpose doctrine as an
organizing principle. To the contrary, as noted, international human rights
law aspires to supplement and work together with domestic law.709
Accordingly, there is an imperative need for international human rights to
be able to rely upon a robust iteration of the public purpose doctrine that is
objective (and not self-judging) and content-rich (not driven by all things
public as characterized by a particular State). The teachings of the public
purpose doctrine, as referenced in the European Convention, the American
Convention, and the African Charter, identifies public purpose as a central
organizing principle in international human rights law that forms part of
customary international law. Moreover, the doctrine plays a critical role in
tempering application of international human rights. It also plays a pivotal
part in the organizational framework of international human rights. Seven
distinct applications of the public purpose doctrine can be gleaned from
the doctrine’s role in the European and American Conventions, and the
African Charter.
First, the scope and application of the public purpose doctrine is
qualified as to the (i) subject matter, and (ii) at least in the European and
American Conventions, States’ right to apply the doctrine in order to
curtail entitlement to human rights protection is predicated on a
purportedly “objective” standard: specifically, the presence of a
“democratic society.”710
Second, the public purpose doctrine is indispensable to the actual
formation of a hierarchy of international human rights norms that is not
explicitly expressed or defined as such in these instruments. The mere
presence of the doctrine in some but not all of the human rights contained
in these conventions itself gives rise to a hierarchy of human rights. This
proposition is supported, by way of example, by Article 27 of the
American Convention (“Suspension of Guarantees”).711
Third, the content, and therefore also the application, of the public
purpose doctrine is materially different depending on the human rights
convention at issue. Each convention analyzed is substantively influenced
by the history and current economic status of the signatory States. Thus,
the very human rights norms vary accordingly as does the scope, content,
and application of the public purpose doctrine contextualized by a specific
convention. Therefore, the preambles of the three conventions analyzed
considerably vary in content and in the signatory parties’ understanding of
709
See supra at Chapter 3, Introduction.
710
See supra notes 683, 692 & accompanying text.
711
American Convention, supra note 13, art. 27.
EAST\64724221. 3261
the right to be applied in connection with a wrong to be avoided or
corrected. Overarching these differences, however, is a proposition
common to all three conventions: the public purpose doctrine is broader in
scope than its iteration in the NAFTA, the GATT, or any of the UNCTAD
instruments analyzed in this writing.712
Fourth, the conventions, specifically Article 13 of the American
Convention, comport with a “proportionality” approach to the application
of the doctrine that seeks avoidance of “all or nothing” outcomes.
Qualifying certain freedoms of thought and expression on the ground of
public purpose that lead to liability and not censorship is illustrative of this
point. This application of the doctrine represents a meaningful
contribution to the crafting of a public purpose rubric that, unlike its
legacy iteration, best satisfies a Global paradigm among nations of
interdependence and not independence.713
Fifth, application of the public purpose doctrine as a complete bar
to a human right is applicable only to a special class category meriting
extraordinary protection, as is the case with Article 13(4) of the American
Convention concerning “the moral protection of childhood and
adolescence.”714
Sixth, depending on the human rights convention consulted, a
particular expression of the public purpose doctrine may serve as an actual
human right that under some scenarios rightfully limits State sovereignty,
or as an exception that amplifies regulatory sovereignty to the detriment of
rights owed to individuals.715
Seventh, much like the public purpose doctrine of permanent
sovereignty over natural resources,716 the exploitation and disposition of
wealth and resources may be characterized as a peoples’ right that can
serve both as an affirmative right and an exception triggering application
of regulatory sovereignty.717
712
For a discussion of the NAFTA, see supra Chapter 1. Regarding the GATT and
UNCTAD Instruments, see supra Chapter 2.
713
See discussion of proportionality infra Section 3.
714
American Convention, supra note 13, art. 13 ¶ 4.
715
See, e.g., African Charter, supra note 399, art. 21.
716
Addressed infra at Chapter 5.
717
See, e.g., African Charter, supra note 399, art. 21
EAST\64724221. 3262
The American and European Conventions, as well as the African
Charter, analyzed serve as material evidence supporting the (i) existence
of a public purpose doctrine, (ii) having the characteristics set forth in the
preceding seven propositions, (iii) which are broader as to scope and
application than the conventional international law iteration of the public
purpose doctrine present in the NAFTA, in part because of the structural
configuration of customary international law. Consequently, there is ample
support for the proposition that the scope, content, and application of the
public purpose doctrine find different expressions in customary
international law and in conventional international law. This dichotomy
further emphasizes the need to fashion a new public purpose doctrine
vested with content and uniformity, or to modify materially the legacy
iteration of the doctrine.
3.
The Jurisprudence of the European Court of Human
Rights and Public Purpose Constraints on Regulatory
Sovereignty.
The European Court of Human Rights has generated a
jurisprudence that aids in understanding the relationship between
international human rights and the domestic application of the public
purpose doctrine as part of the exercise of regulatory sovereignty. Notably,
the Court has adopted and applied a proportionality test to claimants who
allege denial of the fundamental human right to own, use, possess or
otherwise enjoy property. In an eloquently alleged wrongful expropriation
action brought under Article 2 of the European Convention, the Court
artfully applied the proportionality test in determining whether the public
purpose doctrine had been wrongfully used in executing an expropriation
where compensation ultimately was not tendered. The case is particularly
relevant because it is an example of where an appropriate proportionality
test was applied to the legacy public purpose doctrine articulated pursuant
to an unduly broad statutory definition of public purpose consonant with a
subjective (self-judging) standard.
a.
Farrugia v. Malta
In the Farrugia v. Malta decision,718 the applicants were deprived
of property that they used for their livelihood as farmers. The taking
followed receipt of a letter from the Ministry of Public Works and
Construction of the Country of Malta. This letter requested the applicants’
predecessor in interest to reach an agreement concerning the sale of the
718
Farrugia v. Malta, Fourth Section Decision, App. No. 67557/20 (Mar. 6, 2012)
[hereinafter Farrugia].
EAST\64724221. 3263
subject property to a private third party upon penalty of commencement of
expropriation proceedings if an agreement was not reached.719
Having failed to reach an agreement for the sale-purchase of the
property, the relevant third party seeking acquisition of the property
petitioned the government to expropriate the land on the basis that it
constituted the single access to its property. Contemporaneously with this
petition, the third party applied for a permit to build residential apartments
and garages on the property concerned.720 In furtherance of the applicable
statutory framework, Chapter 88 of the Laws of Malta—the Land
Acquisition Public Purposes Ordinance (“LAPPO”)—the Government
Gazette announced that the property concerned was being expropriated
“for a public purpose.”721
Applicants initiated a constitutional redress proceeding in
observance of local law on the ground that the expropriation was illicit
because no compensation was tendered, let alone “adequate
compensation,” and the taking was for the benefit of a private party and
not the government. As such, the applicants argued that the taking did not
meet the requisite public interest stricture.722 Additionally, applicants
averred that the proposed roadway would affect their farm and cultivated
farmland in a manner that would materially diminish productivity. In this
connection, applicants “noted that they had been cultivating and breeding
animals on said land for forty years, long before the arrival of the present
developer.”723 Furthermore, the applicants asserted that “they had not been
informed of the expropriation until work on the construction of the road
was commenced.”724
The first instance tribunal denied applicants’ claim based upon
want of public interest. The trial court provided that:
[I]t considered that Article 2 of the LAPPO did not exclude
that an expropriation could also serve the interests of third
parties. Thus, while it was true that the expropriation in the
present case had been triggered by third party’s request,
since the land had originally been earmarked as a road it
719
Id. at ¶¶ 3-4.
720
Id. at ¶ 5.
721
Id. at ¶ 6.
722
Id. at ¶ 7.
723
Id.
724
Id..
EAST\64724221. 3264
could not be said that the taking had not been in the public
interest.725
Further observing that the property constituted less than one-eighth of
applicants’ entire property, the trial court concluded that the burden to
applicants was outweighed by the ingress/egress now made available for
public use.726
In processing applicants’ application, the European Court of
Human Rights (“the Court”) noted that the rule contained in the second
sentence of Article 1—asserting that “[n]o one shall be deprived of his
possessions except in the public interest and subject to the conditions
provided for by law and by the general principles of international law”—
requires satisfaction of the “proportionality” talisman in addition to the
requisite “public interest” standard. In this connection, the Court asserted
that:
[A] fair balance must be struck between the demands of the
general interest of the community and the requirements of
the protection of the individual’s fundamental rights, the
search for such a fair balance being inherent in the whole of
the Convention. The requisite balance will not be struck
where the person concerned bears an individual and
excessive burden.727
The Court thus summarized its task as having to determine whether
application of the proportionality test yields “the requisite balance” in a
way that comports with applicants’ right of property.728 Pursuant to its
own precedent, the proportionality test fails where, for example, it is
determined that a taking of property occurred without compensation or
payment in an amount that is not reasonably related to its value.729 Either
scenario as a matter of law creates a “disproportionate inference” in the
application of the proportionality test.730
725
Id. at ¶ 9.
726
Id. Applicants also had asserted claims based on Article 1 (“Protection of property”),
Protocol No. 1, Article 3 (“Prohibition of torture”), and Article 8 (“Right to respect for
private and family life”).
727
Id. at ¶ 20 (citing Sporrong and Lönnroth v. Sweden, 52 Eur. Ct. H.R. (ser. A) at ¶ 61
(1982)).
728
Id. at ¶ 20 (citing Abdilla v. Malta, First Section Decision, App. No. 38244/03 (Nov.
3, 2005))..
729
Id. at ¶ 20.
730
See, e.g., Holy Monasteries v. Greece, 301-A Eur. Ct. H.R. (ser. A) at ¶ 71 (1994).
EAST\64724221. 3265
Upon assuming “the lawfulness of the interference [with the
subject property] which was confirmed by the domestic courts and of
which the applicants have not complained,”731 the Court engaged in a
“public interest” analysis and reiterated the principle that:
[T]he compulsory transfer of property from one individual
to another, may, depending on the circumstances, constitute
a legitimate means for promoting the public interest. In this
regard, the taking of property effected in pursuance of
legitimate social, economic or other policies may be ‘in the
public interest’ even if the community at large has no direct
use or enjoyment of the property taken.732
As to the expropriation sub judice, while observing that “the system of
expropriation initiated at the request of third parties in Maltese domestic
law is novel,” it held that the public purpose component of the inquiry had
been amply met.733
Having established that the taking comported with the public
purpose doctrine, it became clear to the Court that the single outstanding
issue was whether lack of compensation triggered a violation of Article 2
of the European Convention. The finding in the negative was premised on
a determination that applicants, “through their own fault,”734 failed to
exhaust domestic remedies and for this reason did not allow for a finding
on “the question of whether the compensation offered was sufficient to
preserve a fair balance between the demands of the general interest and the
requirements of the protection of the applicants’ rights.”735 The Court’s
analysis as to the application of the proportionality prong raises
considerably more questions than it can possibly address, in large measure
because of the absence of any commentary as to why specifically
applicants were at “fault” such that absolute non-payment of
compensation for the taking does not affect proportionality.736 The
731
Farrugia, supra note 720, at ¶ 21.
732
Id. at ¶ 22 (internal citations omitted).
733
Id.
734
Id. at ¶ 25.
735
Id. at ¶ 23 (citing J. Lautier Company Ltd. v. Malta, Decision, App. No. 37448/06
(Dec. 2, 2008)).
736
Irrespective of whether applicants wrongfully limited their first instance prosecution to
the issue of lack of public purpose and as a result rendered the record bereft of any
evidence of quantum as to compensation, it remains uncontroverted that no compensation
at all issued. Extended to its logical consequence, the Court’s treatment of compensation
and the proportionality test leads to the conclusion that Malta was estopped from
EAST\64724221. 3266
proposition that a taking took place without any compensation, without
more, bespeaks more analysis from the Court than mere reliance on a
technical procedural matter arising from domestic law. The burden of a
taking without compensation must form part of any proportionality
analysis. Ultimately, however, it is the public purpose analysis that causes
the Court to dismiss applicants’ complaints.
Farrugia quite eloquently illustrates the relationship between
international human rights and the public purpose doctrine. It also airs
many of the reasons why the legacy public purpose doctrine is an obstacle
to the efforts undertaken by international human rights’ law to redeem its
promise to work together with and supplement domestic law. Beyond the
technical and unremarkable inquiry concerning the extent to which a
compulsory transfer of property to a private party may satisfy a taking’s
public purpose requirement and thus fail to trigger an Article 2 violation,
the relevant public purpose inquiry concerns the relationship between the
meaning of the doctrine within the relevant domestic law and the extent to
which that definition comports with property rights as a fundamental
human right under Article 2. Thus framed, the exigent need for a contentrich and objective public purpose doctrine that may functionally trigger
human rights protection becomes much clearer. A broad and seemingly
boundless definition of public purpose invites consistently reaching the
wrong result for the right reason. Farrugia could not be more revealing as
to this broader point.
The operative definition of public purpose under the laws of Malta
much resembles a codification of the legacy doctrine that simply is too
broad and unqualified to be meaningful in identifying an abuse of the
doctrine. Article 2 of the LAPPO, purporting to define “public purpose”
within the meaning of the statute—a definition which the Court did not
question or comment upon—provides:
‘Public purpose’ means any purpose connected with
exclusive Government use for general public use, or
connected with or ancillary to the public interest or utility
(whether the land is for use by the Government or
otherwise), or for town planning or reconstruction or the
generation of employment, the furtherance of tourism, the
payment of compensation in connection with a taking because “the Constitutional Court
considered that the applicants’ appeal was solely related to the public interest
requirement,” even though a public interest analysis cannot be altogether severed from
application of a proportionality test. Moreover, the inference or conclusion that a State is
somehow estopped from meeting its obligation to tender payment in connection with an
expropriation where the affected party on technical grounds failed to plead properly that
the expropriation was legally defective because no payment at all was tendered,
represents but tautological reasoning that exhorts form over substance. The stark fact of
record unequivocally establishes that the expropriation took place without any
compensation.
EAST\64724221. 3267
promotion of culture, the preservation of the national or
historical identity, or the economic well-being of the State
or any purpose connected with the defence of Malta or
connected with or ancillary to naval, military or air
operations; and includes any other purpose specified as
public by any enactment; and for the purposes of this
definition, where the purpose for the exercise of any right
under this Ordinance is connected with the utilisation of
any land or any right in connection or in relation therewith
for any purpose connected with the supply, storage or
distribution of few or other sources of energy, or in
connection with the provision of any utility or municipal
services or infrastructural project shall be deemed to be
connected with or ancillary to the public interest or
utility.737
The definition of public purpose within LAPPO places little constraint on
regulatory sovereignty based upon a public purpose analysis. The Court is
simply silent as to this point. It fails to observe that practically any human
undertaking in connection with organized society may be rightfully
construed as within the ambit of or ancillary to a “public purpose” within
the meaning of the statute. Instead of placing subject matter in parameters,
Article 2 of the LAPPO appears only to be referenced for purposes of
contextualizing public purpose and the direct or indirect connection to a
public purpose that a compulsory transfer of property between private
individuals is likely to have. Accordingly, as to the LAPPO legislation, it
is virtually impossible conceptually for any activity concerning real
property not to be interpreted as a public purpose, empowering a State to
engage in regulatory sovereignty to the detriment of private persons, both
foreign and domestic.
Even though the Court quite understandably lacks jurisdiction to
sit in judgment of a Maltese legislative enactment, it certainly has
jurisdiction to publish its understanding of the shortcomings of such an
expansive and overbroad statutory framework that likely cannot be
construed as in violation of any interest in property in derogation of
Article 2, thus rendering a public purpose analysis under this statute as
fundamentally meritless. The Court substitutes this challenging but
necessary doctrinal scrutiny with merely announcing that the public
purpose requirement is met because the Court “considers that the
construction of a road which would give access to a housing complex,
even though private, may be considered as being in the public interest.”738
737
Farrugia, supra note 720, at ¶ 13 (replicating Article 2 of the LAPPO—Malta’s
relevant domestic law) (emphasis supplied).
738
Id. at ¶ 22 (emphasis supplied).
EAST\64724221. 3268
Because the Court is charged with doing more than just participating in
perfunctory affirmations of first-instance adjudications finding a
legitimate public purpose exercised, it has authority to assert that the
doctrine, even as defined by statute, must be narrower if it is to be
reconciled with a specific human right at stake. The violation of the right
to property would then be doctrinally linked to non-compliance with the
public purpose requirement.
A legacy public purpose doctrine that subordinates international
human rights law to domestic regulatory governance shall have the effect
of minimizing the protection against State abuse that international human
rights aspires to guard against. The European Court of Human Rights’
acceptance of an unqualified expropriation where it was uncontested that
no compensation was tendered leaves much to be desired.
b.
Leyla Sahin v. Turkey
The need for a robust public purpose doctrine in the realm of
international human rights law becomes all the more apparent in cases
where the quality of domestic law restricting freedoms of expression and
of religion are found to be “proportional” when weighed against the public
order that such restrictions ostensibly are intended to secure. Only the
broadest construction of a self-judging public purpose standard will yield a
lack of disproportionate inference in the restriction of the fundamental
human rights of expression and religion. A tempered public purpose
analysis would serve as a necessary protection between individual human
rights and the State’s infringement of those rights under the banner of
regulatory sovereignty exercised in furtherance of public order. The
incongruity arising from application of an unbridled public purpose within
the framework of regulatory sovereignty is compounded, made worse, and
highlighted where fundamental human rights are restricted in
contravention of the very domestic laws of the State issuing such
restrictions, and in defiance of the domestic laws of the majority of
members of the community of nations addressing the identical issue. A
paradigm example of the dysfunctional interface between international
human rights law and the legacy public purpose doctrine is found in the
European Court of Human Rights’ analysis and adjudication in the case of
Leyla Şahin v. Turkey.739
In Şahin, the applicant, then in her fifth year at the Faculty of
Medicine at Bursa University, had enrolled in the Cerrahpasa Faculty of
739
Şahin v. Turkey, 2005-XI Eur. Ct. H.R. 173 [hereinafter Şahin].
EAST\64724221. 3269
Medicine at Istanbul University. The Court’s judgment reflects that “she
wore the Islamic headscarf during the four years she spent studying
medicine at the University of Bursa and continued to do so until February
1998.”740 On February 23, 1998, the Vice-Chancellor of Istanbul
University issued a circular—allegedly based upon the case law of the
Supreme Administrative Court and the European Commission of Human
Rights—proscribing admission to lectures and tutorials to students
wearing the Islamic headscarf and also to students with beards.741 Upon
being denied access, the applicant filed for issuance of an order setting
aside the circular, averring that it infringed her rights as guaranteed by
Article 8 (“Right to Respect for Private and Family Life”), Article 9
(“Freedom of Thought, Conscience, and Religion”), Article 14
(“Prohibition of Discrimination”), and Article 2 of Protocol No. 1 (“Right
to Education”). The applicant specifically Stated that “there was no
statutory basis for the circular and the Vice-Chancellor’s Office had no
regulatory power in that theater.”742
The applicant exhausted her judicial remedies before domestic
courts,
but not before the entry into force of legislation granting
743
740
Id. at 3 ¶ 15.
741
Id. at 3 ¶ 16. The circular at issue in pertinent part provides:
By virtue of the Constitution, the law and regulations, and in
accordance with the case-law of the Supreme Administrative Court and
the European Commission of Human Rights and the resolutions
adopted by the university administrative boards, students whose ‘heads
are covered’ (who wear the Islamic headscarf) and students (including
overseas students) with beards must not be admitted to lectures,
courses or tutorials. Consequently, the name and number of any
student with a beard or wearing the Islamic headscarf must not be
added to the lists of registered students. However, students who insist
on attending tutorials and entering lecture theatres although their names
and numbers are not on the lists must be advised of the position and,
should they refuse to leave, their names and numbers must be taken and
they must be informed that they are not entitled to attend lectures. If
they refuse to leave the lecture theatre, the teacher shall record the
incident in a report explaining why it was not possible to give the
lecture and shall bring the incident to the attention of the university
authorities as a matter of urgency so that disciplinary measures can be
taken.
Id. (emphasis supplied).
742
Id. at 4 ¶ 18.
743
The Istanbul Administrative Court dismissed the application on the very narrow
ground that “a University Vice-Chancellor, as the executive organ of the university, had
power to regulate students’ dress for the purposes of maintaining order.” The Supreme
Administrative Court dismissed a subsequent appeal. Id. at 4 ¶¶ 19-20 (emphasis
supplied).
EAST\64724221. 3270
students amnesty from penalties imposed for alleged disciplinary
violations and “resulting disabilities.”744 Based upon Article 9 (“Freedom
of Thought, Conscience, and Religion”) of the Convention, the applicant
perfected an action before the European Court of Human Rights asserting
that “the ban on wearing the Islamic headscarf in institutions of higher
education constituted an unjustified interference with her right to freedom
of religion, specifically, her right to manifest her religion.”745 The
application was denied by the Court’s Chamber, which issued a judgment
characterizing the restriction contained in the Istanbul University
regulations proscribing the right to wear the Islamic headscarf as one of
the legitimate objectives contained in the second paragraph in Article 9 of
the Convention. Indeed, the restriction was viewed as “justified in
principle and proportionate to the aims pursued and could therefore be
regarded as having been ‘necessary in a democratic society.’”746
On appeal to the Grand Chamber, the applicant narrowly
challenged the specific grounds on which the Chamber had concluded that
no violation of Article 9 of the Convention had taken place.747 Moreover,
in what appeared to be a keen and practical procedural adjustment, the
applicant asserted that her redress was not one that sought a universal right
of recognition for all women to wear the Islamic headscarf in all places
and without qualification. She noted that “[i]mplicit in the section
744
Id. at 5 ¶ 26.
745
Id. at 17-18 ¶ 70. Article 9 of the Convention reads:
1.
Everyone has the right to freedom of thought, conscience and
religion; this includes freedom to change his religion or belief and
freedom, either alone or in community with others and in public or
private, to manifest his religion or belief, in worship, teaching,
practice and observance.
2.
Freedom to manifest one’s religion or beliefs shall be subject only
to such limitations as are prescribed by law a democratic society
in the interests of national security or public safety, for the
prevention of disorder or crime, for the protection of health or
morals or for the protection of the rights and freedoms of others.
European Convention, supra note 16, art. 9 ¶¶ 1-2 (emphasis supplied).
746
Şahin, supra note 741, at 18 ¶ 71 (citing paragraphs 66-116 of the Fourth Section’s
Chamber
Judgment
of
Jun.
29,
2004,
available
at
http://hudoc.echr.coe.int/sites/eng/pages/search.aspx?i=001-61863).
747
Id. at 18 ¶ 72.
EAST\64724221. 3271
judgment is the notion that the right to wear the headscarf will not always
be protected by freedom of religion. I do not contest that approach.”748
The nuanced issue edited to apply only to the specific case before
the Court did not at all advance applicant’s cause. Notwithstanding the
Court’s penchant for formal, technical arguments—most notably whether
transitional section 17 of Law no. 2547 provided a legal basis for a
regulatory provision proscribing use of the Islamic headscarf749—it
ultimately premised its analysis and holding on deference to the workings
of the public purpose doctrine within the sphere of regulatory sovereignty
in a “democratic society.” In ratifying the Chamber’s reasoning, the Court
reproduced the lower court judgment as follows:
The Court ... notes the emphasis placed in the Turkish
constitutional system on the protection of the rights of
women ... Gender equality – recognised by the European
Court as one of the key principles underlying the
Convention and a goal to be achieved by member States of
the Council of Europe was also found by the Turkish
Constitutional Court to be a principle implicit in the values
underlying the Constitution ...
... In addition, like the Constitutional Court ..., the Court
considers that, when examining the question of the Islamic
headscarf in the Turkish context, it must be borne in mind
the impact which wearing such a symbol, which is
presented or perceived as a compulsory religious duty, may
have on those who choose not to wear it. As has already
been noted, the issues at stake include the protection of the
748
Id. at 18 ¶ 73.
749
The applicant had alleged that there was no legislative norm in existence capable of
constituting a legal basis for the regulatory provision. Accordingly, she asserted that the
circular 8 of February 23, 1998, upon which the ban on wearing the Islamic headscarf
was based, simply could not be compatible with transitional section 17 of Law no. 2547,
“as that section did not proscribe the Islamic headscarf and there were no legislative
norms in existence capable of constituting a legal basis for a regulatory provision.” Id. at
21 ¶ 86. Consequently, following this line of thought, the Court undertook extensive
review of the meaning of such fundamental terms as “in accordance with the law” and
“prescribed by law,” as asserted in Articles 8 to 11 of the Convention, in an effort to
canvas the extent to which the domestic legislature of the respondent State in fact had
issued finding regulations relevant to wearing an Islamic headscarf. Because the terms
“in accordance with the law” and “prescribed by law” within the meaning of Articles 8 to
11 of the Convention are accorded broad constructions as to the meaning of the word
“law,” the Court was able to find “that there was a legal basis for the interference in
Turkish law, namely transitional section 17 of Law no. 2547 [when] read in light of the
relevant case-law of the domestic courts.” Id. at 23 ¶ 98. Furthermore, the Court found
that the legislation met both accessibility and foreseeability requirements.
EAST\64724221. 3272
‘rights and freedoms of others’ and the ‘maintenance of
public order’ in a country in which the majority of the
population, while professing a strong attachment to the
rights of women and a secular way of life, adhere to the
Islamic faith. Imposing limitations on freedom in this
sphere may, therefore, be regarded as meeting a pressing
social need by seeking to achieve those two legitimate
aims, especially since, as the Turkish courts Stated ..., this
religious symbol has taken on political significance in
Turkey in recent years.
... The Court does not lose sight of the fact that there are
extremist political movements in Turkey which seek to
impose on society as a whole their religious symbols and
conception of a society founded on religious precepts ... It
has previously said that each Contracting State may, in
accordance with the Convention provisions, take a stance
against such political movements, based on its historical
experience The regulations concerned have to be viewed in
that context and constitute a measure intended to achieve
the legitimate aims referred to above and thereby to
preserve pluralism in the university.750
In the name of pluralism and public order, the Court found that an
inference of disproportionality between the constraints imposed on the
Article 9 human right and the legitimate objective pursued by the subject
interference.751
750
Id. at 28 ¶ 115 (citing paragraphs 107-109 of the Fourth Section’s Chamber Judgment)
(emphasis supplied & internal citations omitted).
751
As to proportionality, the Court observed that:
Having found that the regulations pursued a legitimate aim, it is not
open to the Court to apply the criterion of proportionality in a way that
would make the notion of an institution’s ‘internal rules’ devoid of
purpose. Article 9 does not always guarantee the right to behave in a
manner governed by a religious belief and does not confer on people
who do so the right to disregard rules that have proved to be justified.
In light of the forgoing and having regard to Contracting States’ margin
of appreciation in this sphere, the Court finds that the interference and
issue was justified in principle and proportionate to the aim pursued.
Consequently, there has been no breach of Article 9 of the Convention.
Id. at 30 ¶¶ 121-123 (internal citations omitted).
EAST\64724221. 3273
Thus, Article 9 was subordinated to the preservation of a
“democratic society” within the meaning of the Convention.752 In turn, the
Court found “pluralism” to be “indissociable from a democratic
society.”753 The public purpose doctrine serves as the theoretical fulcrum
upon which the privacy of religious freedom as a matter of individual
conscience may be balanced against the right to the freedom to manifest
one’s religion publicly within a community. Upon acknowledging that
“Article 9 does not protect every act motivated or inspired by religion or
belief,”754 the Court asserted:
In democratic societies, in which several religions coexist
within one and the same population, it may be necessary to
place restrictions on freedom to manifest one’s religion or
belief in order to reconcile the interests of the various
groups and ensure that everyone’s beliefs are respected. 755
Public purpose, here in the form of “public order,” is thus used as a
precept justifying the curtailment of a freedom for the greater glory of
“true religious pluralism, which is vital to the survival of a democratic
society.”756 Indeed, analytic support was drawn from Karaduman v.
Turkey,757 where
[T]he Convention institutions found that in a democratic
society the State was entitled to place restrictions on the
wearing of the Islamic headscarf if it was incompatible
with the pursued aim of protecting the rights and freedoms
of others, public order and public safety.758
The Court’s reliance on an unbridled understanding of public purpose,
together with untested assumptions concerning the term “democratic
society” are indeed disappointing and, even worse, conceptually
unavailing. The record, consonant with the Court opinion’s narrative, is
lacking any facts from which it may be inferred that the regulation at issue
752
Id. at 24 ¶ 104.
753
Id.
754
Id. at 24-25 ¶ 105 (citing Cha’are Shalom Ve Tsedek v. France [GC], App. No.
27417/95, 2000-VIII Eur. Ct. H.R. at ¶ 73).
755
Id. at 25 ¶ 106.
756
Id. at 27 ¶ 110 (citation omitted).
757
Karaduman v. Turkey, App. No. 16278/90, 74 Eur. Comm’n H.R. Dec. & Rep. 93
(1993) [hereinafter Karaduman]; see also Dahlab v. Switzerland, 2001-V Eur. Ct. H.R.
447 [hereinafter Dahlab].
758
Şahin, supra note 741, at 27 ¶ 111 (emphasis supplied).
EAST\64724221. 3274
was necessary upon penalty of endangering the public or otherwise
assuming the risk of general disorder arising from the sight of a medical
student sporting the Islamic headscarf. The analysis is problematic.
Pluralism in the Court’s analysis does not comport with diversity and
multiculturalism. Also, absent is any showing that “pluralism” in a
democratic society within the meaning of the Convention would somehow
be placed in jeopardy as a result of the applicant wearing the Islamic
headscarf.
Rather than deferring to tautological argument asserting a need to
subordinate the Article 9 human right to the preservation of pluralism
within a democratic society by dint of the public purpose doctrine, the
Court should have questioned the brazen exercise of regulatory
sovereignty in the pursuit of secularism and democratic values that led to
the detriment of human rights. Both proportionality and public purpose, as
standards governing the likelihood of infringement on a fundamental
human right, were viewed strictly through the self-judging lens of the
signatory State. Neither the public purpose doctrine nor the principle of
proportionality were contextualized by the specific facts underlying the
case.
The analysis, from a public purpose scope and content perspective,
was defective on the additional ground that it did not at all accord any
weight to the manner in which the specific issue before it had been treated
by the majority of States in the relevant community of nations. Customary
international law arising from the practice of States should serve as a
source for substantive content that may be ascribed to principles such as
the public purpose doctrine with respect to specific issues, such as the
relationship between Article 9 human rights and domestic legislation. The
Court’s opinion demonstrates a diversity of treatment by the community of
nations as to the issue in question: regulating the wearing of religious
symbols in educational institutions generally, and in institutions of higher
learning in particular.
Article L. 141-5-1 of the Education Code of France, for example,
provides:
In State primary and secondary schools, the wearing of
signs or dress by which pupils overtly manifest a religious
affiliation is prohibited. The school rules shall State that the
institution of disciplinary proceedings shall be preceded by
dialogue with the pupil.759
759
Id. at 14 ¶ 56.
EAST\64724221. 3275
This Act, however, does not apply to State universities. A circular issued
on May 18, 2004 establishes that the act is only limited to “….signs such
as the Islamic headscarf, however named, the kippah, or a cross that is
manifestly oversized, which make the wearer’s religious affiliation
immediately identifiable.”760 The policy underlying the interference is
manifestly aimed at proscribing what may be perceived as undue influence
among minors and for this reason should not extend to State universities.
The wearing of the Islamic headscarf by adults in State universities
constitutes a protected religious expression in France.
The Court’s opinion also acknowledged that in Belgium “there is
no general ban on wearing religious signs at school.”761 Indeed, a Belgian
decree issued on March 13, 1994 in the French Community “stipulates that
education shall be neutral within the Community. Pupils are in principle
allowed to wear religious signs.”762 This right to wear religious signs,
however, is qualified by the public purpose doctrine.763 In the Flemish
Community, religious or philosophical signs to be worn are not uniformly
regulated. Here, too, restrictions on such vestments may attach based upon
“hygiene or safety.”764
In Austria, Germany, the Netherlands, Spain, Sweden,
Switzerland, and the United Kingdom, Muslim peoples and students are
allowed to wear the Islamic headscarf.765 The Court observed that:
In Germany, where the debate focused on whether teachers
should be allowed to wear the Islamic headscarf, the
Constitutional Court Stated on 24 September 2003 in a case
between a teacher and the Land of Baden-Württemberg that
the lack of any express statutory prohibition meant that
teachers were entitled to wear the headscarf. Consequently,
it imposed a duty on the Länder to lay down rules on dress
760
Id.
761
Id. at 15 ¶ 57.
762
Id.
763
The Court makes reference to the fact that in Belgium the right may be infringed upon
“only if human rights, the reputation of others, national security, public order and public
health and morals are protected and internal rules complied with. Further, teachers must
not permit religious or philosophical proselytism under their authority or the organisation
of political militancy by or on behalf of pupils.” Id.
764
Id.
765
Id. at 15 ¶ 58.
EAST\64724221. 3276
if they wished to prohibit the wearing of the Islamic
headscarf in State schools. 766
As in the Belgian Flemish Community, Austria does not proscribe the
wearing of the headscarf, turban, or kippah, but recognizes a right to
regulate on the grounds of health or safety hazard for peoples.767 Despite
canvassing the status of the law with respect to the issue of wearing the
Islamic headscarf as part of a fundamental human right in these countries,
the Court also observed that in Russia, Romania, Hungary, Greece, the
Czech Republic, Slovakia, and Poland, this concern “does not yet appear
to have given rise to any detailed legal debate.”768
The dissenting opinion registered by Judge Tulkens focuses
precisely on the Court’s surface treatment of the majority view on this
issue as expressed by the community of nations and principally the
signatories to the Convention. Judge Tulkens asserts that the “margin of
appreciation” methodology pursuant to which deference is accorded to
national authorities on the ground that they are “better placed” to
determine their optimal compliance with Convention obligations, is
fundamentally flawed because of the failure to incorporate meaningfully
the positions taken by the majority of States on this issue:
I would perhaps have been able to follow the margin-ofappreciation approach had two factors not drastically
reduced its relevance in the instant case. The first concerns
the argument the majority use to justify the width of the
margin, namely the diversity of practice between the States
on the issue of regulating the wearing of religious symbols
in educational institutions and, thus, the lack of a European
consensus in this sphere. The comparative-law materials do
not allow of such a conclusion, as in none of the member
States has the ban on wearing religious symbols extended
to university education, which is intended for young adults,
who are less amenable to pressure. The second factor
concerns the European supervision that must accompany
the margin of appreciation and which, even though less
extensive than in cases in which the national authorities
have no margin of appreciation, goes hand in hand with it.
However, other than in connection with Turkey’s specific
historical background, European supervision seems quite
simply to be absent from the judgment. However, the issue
766
Id. at 15 ¶ 59.
767
Id. at.15 ¶ 60.
768
Id. at 16 ¶ 65.
EAST\64724221. 3277
raised in the application, whose significance to the right to
freedom of religion guaranteed by the Convention is
evident, is not merely a “local” issue, but one of importance
to all the member States. European supervision cannot,
therefore, be escaped simply by invoking the margin of
appreciation.769
Judge Tulkens’s observation requires context if it is to be analyzed within
the framework of public purpose as the doctrine underlies this writing. The
Court deferred to domestic law on the issue of whether Article 9 human
rights were compromised by domestic law proscribing the wearing of the
Islamic headscarf in institutions of higher learning. Foreclosing
consideration of the European consensus on this fundamental human right
comports with application of a public purpose doctrine that is self-judging
by the invoking State—in this instance, Turkey—whose exercise of
regulatory sovereignty was the subject matter of the application before the
Court. The margin-of-appreciation approach is but an ancillary
methodology that institutionalizes from a tactical perspective the
proposition that only the invoking State is properly positioned to
determine the extent to which regulatory sovereignty premised on public
purpose may legitimately and genuinely infringe upon individual rights
and corresponding State obligations attendant to such rights. Although
analytically sound and intuitively appealing, the Court’s reliance on the
objective standard that the European consensus represents would have
signaled a major paradigm shift in the treatment of public purpose from a
subjective criteria that is content-free to an objective rubric narrower in
scope and substantively infused by the practice of the majority of
European States. Judge Tulkens’s analysis properly acknowledges that
European supervision based upon an objective standard in relation to a
fundamental human right cannot be viewed as just a “local issue” subject
to constraints pursuant to the application of a parochial public purpose
talisman. The enshrining of secularism over religious freedom is in great
measure is based upon and supported by the proposition that Article 9
rights relating to the manifestation of the person’s religious beliefs in a
secular university are appropriately restricted by the overriding public
purpose obligation to protect adult students from “fundamentalist religious
movements.”770 The Court’s reading of the Commission’s procedural
769
Id. at 44 ¶ 3 (Tulkens, J., dissenting).
770
Id. at 27 ¶ 111 (majority opinion).
The Court misconstrues the legal principle that the Commission articulated in
Karaduman as supporting the premise that:
[M]easures taken in universities to prevent certain fundamentalist
religious movements from exerting pressure on students who did not
practise their religion or who belonged to another religion were not
EAST\64724221. 3278
analysis in Karaduman is analytically more than a shade off because of
both the legal issues addressed, and the very unique factual configuration
of that proceeding.
Reliance on the Dahlab decision is equally misplaced. In that
proceeding, the applicant was Swiss national employed as a primaryschool teacher and living in Geneva.771 Applicant had been asked by the
Canton of Geneva Directorate for Primary Education to refrain from
wearing a headscarf in the performance of her teaching duties because, so
the argument alleged, such vestment was incompatible with Section 6 of
the Public Education Act.772 Upon unsuccessfully exhausting domestic
remedies, the applicant perfected an appeal with the Court, alleging that
Section 6 of the Public Education Act infringed her freedom to manifest
her religion consonant with Article 9 of the Convention. As part of her
challenge, applicant further averred that the Swiss Courts committed
judicial error in holding that the measure (i) enjoyed sufficient foundation
in law, and (2) in finding “that there was a threat to public safety and to
the protection of public order” arising from applicant’s wearing of the
considered to constitute interference for the purposes of Article 9 of the
Convention. Consequently, it is established that institutions of higher
education may regulate the manifestation of the rites and symbols of a
religion by imposing restrictions as to the place and manner of such
manifestation with the aim of ensuring peaceful coexistence between
students of various faiths and thus protecting public order and the
beliefs of others.
Id. This interpretation of the Karaduman opinion simply finds no support based upon the
facts presented and the issues addressed in that case.
771
Dahlab, supra note 759, at 1.
772
Id. at 7. Section 6 of the Canton of Geneva Public Education Act, dated Nov. 6, 1940
reads:
The public education system shall ensure that the political and religious
beliefs of pupils and parents are respected.
Section 120(2) of the Public Education Act States:
Civil servants must be lay persons; derogations from this provision
shall be permitted only in respect of university teaching staff.
Article 27, §3 of the Federal Constitution, May 29, 1874 reads:
It shall be possible for members of all faiths to attend State schools
without being affected in any way in their freedom of conscience or
belief.
Id.
EAST\64724221. 3279
Islamic scarf.”773 As to this latter proposition, applicant asserted “that she
[had] wor[n] an Islamic headscarf and had gone unnoticed for four years
and did not appear to have caused any obvious disturbance within the
school.”774
Upon discarding applicant’s challenge to the subject measure as
not meeting the “prescribed by law” requirement of Paragraph 2 of Article
9,775 the Court applied a proportionality test weighing the requirements of
the protection of the rights and liberties of others against the conduct at
issue. In doing so, weight was accorded to the extent to which wearing
such “a powerful external symbol” may affect the religious belief of her
pupils.776 Similarly, the Court noted that the domestic tribunal had placed
emphasis on:
[T]he very nature of the profession of State school teachers,
who were both participants in the exercise of educational
authority and representatives of the State, and in doing so
weighed the protection of the legitimate aim of ensuring the
neutrality of the State education system against the freedom
to manifest one’s religion.777
Upon conceding that “very difficult to assess the impact that a powerful
external symbol such as the wearing of a headscarf may have on the
freedom of conscience and religion of very young children,”778 the Court
stressed the young ages of the children who served as applicant’s students:
The applicant’s pupils were aged between four and eight,
an age at which children wonder about many things and are
also more easily influenced than older pupils. In those
circumstances, it cannot be denied outright that the wearing
of a headscarf might have some kind of proselytising effect,
seeing that it appears to be imposed on women by a precept
which is laid down in the Koran and which, as the Federal
Court noted, is hard to square with the principle of gender
equality. It therefore appears difficult to reconcile the
wearing of an Islamic headscarf with the message of
773
Id.
774
Id. (emphasis supplied).
775
Id. at 11.
776
Id. at 13.
777
Id. at 12.
778
Id. at 13.
EAST\64724221. 3280
tolerance, respect for others and, above all, equality and
non-discrimination that all teachers in a democratic society
must convey to their pupils. 779
Applicant’s status as a teacher and the youth of her pupils are two facts
that render the Dahlab decision inapposite to Leyla Şahin v. Turkey.
Instead of grade school students, Şahin concerns a university setting and
an interference arising from a circular promulgated pursuant to university
rules. Moreover, while applicant in Dahlab was in a role model capacity
and serving as a government representative in a public post as a school
teacher, in Şahin the applicant was an adult student studying in a
university and having no professional or other government ties. The
remarkable misapprehension of the Court of its own “precedent” and
wholesale importation of boiler plate recitations and concepts such as
“democratic society,” “public order,” and “public safety,” is testimony to
the workings of a public purpose doctrine that cannot appropriately
balance the objectives of international human rights law, regulatory
sovereignty, and the exercise of human rights by individual citizens. In
fact, Şahin, Karaduman, and Dahlab, all reach the identical conclusion
based upon application of the same principles of law, concerning a
common human right (the Article 9 right to manifest religious belief), and
notwithstanding materially disparate facts: (i) the Islamic scarf worn by a
student in a secular university in defiance of university rules; (ii) a picture
ID affixed to a diploma bearing the image of a person wearing an Islamic
headscarf; and (iii) a teacher of grade-school-aged children employed by
the government wearing an Islamic headscarf in defiance of federal
legislation.
The tendency to defer to domestic law that in turn is premised on a
content-impoverished self-judging public purpose doctrine shall more than
likely disfavor the interests of the invoking State over those of the private
individual whose rights are being infringed based upon political agendas
and social prejudices that are disguised with the “public purpose” cloak of
legitimacy. Development of a new paradigm must include consideration of
the teachings of the case studies examined as representatives of the
jurisprudence of the European Court of Human Rights where the public
purpose doctrine: (i) appears as an organizing principle tempering the
brittle relationships among customary and conventional human rights law;
(ii) is pivotal to the exercise of regulatory sovereignty; and (iii) is
necessary in providing access to the Court’s supervisory powers on the
part of individuals whose rights have been violated. Public purpose serves
a central role regarding the development and application of the European
international human rights rubric. Here, public purpose plays a decisive
role.
779
Id. at 13.
EAST\64724221. 3281
Despite this prominence, the public purpose doctrine is never
defined even though its content and substantive effect always appear to be
assumed. The unchallenged treatment of public purpose as a contentneutral precept encompassing all things public and deemed to be best
understood and applied by invoking States necessarily tends to favor the
interests of States over those of individuals whose rights have been
compromised. Because international human rights law purports to
supplement and work together with domestic law, it shall tend to yield to
domestic legislative acts and decisional-law that in turn purport to find
normative standing based upon its conceptual compatibility with such
vague notions as “a democratic society” and “public interest” or “public
safety.”780 Drawing upon the practice of nations, the European consensus
in the case of the European Court of Human Rights, represents a
substantive source that may serve to provide the public purpose doctrine
with concrete content. It is only one of a number of possible
methodologies available for re-engineering a public purpose doctrine that
may best serve the many exacting demands that international human rights
law imposes upon it. Additionally, it also serves to help wrest from States
the monopoly of the doctrine as a tool with which to expand regulatory
sovereignty in specific fields to the detriment of State compliance with
obligations owed to individuals or even to other nations.
780
The frailties of the term “democratic society” have been singled out supra at Chapter
3.A(2).
EAST\64724221. 3282
CHAP
PTER 4
The Effect
E
of Bilateral Invesstment Treaaties on the Public Purp
pose
Doctrrine and thee Public Purrpose Doctriine’s Distorrtion of Sym
mmetry
in Bilateral Invesstment Trea
aties: Discerrning Orderr and Struccture.
EAST\64
4724221.3
283
A.
An Analysis of The Relationship Between Structure And
Content: A Fragmented Framework Within A Decentralized
Body of International Law, And A Legacy Public Purpose
Doctrine.
1.
Unsettled Structural Issues in the Framework of
Bilateral Investment Treaties.
The structural status of bilateral investment treaties (“BITs”)
contributes to the perpetuation of a dysfunctional legacy public purpose
doctrine. The public purpose doctrine constitutes an integral part of BITs.
It is one of the cornerstone exceptions common to all BITs.781 The
fragmented configuration of BITs, however, much like the decentralized
framework of customary international law generally, wrests from the
public purpose doctrine found in BITs any semblance of formal or
substantive uniformity.782 Because the BIT framework is substantively
laced with a want of a uniform framework, this fractured structure
impedes orthodox recourse to statutory interpretations that would
otherwise mitigate the challenges incident to discerning the substantive
content and scope of the doctrine within the BIT network.
The universe of BITs is constituted by a fragmented system of
approximately 3,000 treaties that are not at all interconnected,
conceptually organized, or sharing monolithic material standards.783 The
universe of multilateral regional and bilateral investment treaties is
completely devoid of structure, hierarchy, or of any comparable
781
Even though not all extant bilateral investment treaties have been canvassed to
confirm this proposition, it would be conceptually at odds with the very foundation of
“bilateralism” in public international law generally and the construct of a bilateral
investment treaty purporting to attract foreign investment while preserving strategic
regulatory sovereignty to lack this exception. Moreover, none of the sample 300 BITs
studied for purposes of this writing lacked some fundamental iteration of the doctrine that
was accorded a prominent conceptual role in preserving regulatory sovereignty,
potentially at material detriment to the expectation of compliance with a Host State’s
obligations to protect foreign investment.
782
The lack of uniform terminology and attendant context within the universe of BITs
does not altogether obscure discernible patterns of iterations of the doctrine throughout
the BIT “system.”
783
One commentator creatively has analogized the rubric as “a ‘spaghetti bowl’ of around
3,000 overlapping bilateral and regional treaties, tens of thousands of transnational
contracts, and an unknown number of domestic statutes whose purported aim is to
stimulate economic development by attracting and protecting foreign investments within
the sovereign territories of individual Host States.” Maupin, supra note 420, at 14 n.81.
EAST\64724221.3
284
organizing principle.784 This lack of structural-formal uniformity is present
at substantive levels. By way of example, rudimentary protection
standards contained in BITs remain materially unsettled. Perhaps the
cornerstone standard contained in BITs is the fair and equitable treatment
standard (“FET”) of protection provided to foreign investors.785
Significant questions surrounding this basic standard linger and arouse
considerable polemic as to such fundamental issues as whether FET is a
“principle” or a “standard”?786 In this same vein, FET’s relationship to the
international minimum standard (“IMS”) also has galvanized a number of
competing theories of practical consequences to international dispute
resolution.787 Is IMS the same or different from FET? If substantively
784
In this regard, international investment law stands in high relief with its international
trade law counterpart, which has been duly endowed with a framework and multiinstitutional standing, such as the WTO.
785
The fair and equitable treatment standard is perhaps the most malleable and, therefore,
susceptible even to unintentional over-use by claimants seeking to assert multiple claims
arising from the same or overlapping infractions. Commentators have criticized the
standard as conducive to abuse by claimants seeking to engraft it on violations, that,
according to these writings, are substantively distinct from the fair and equitable
treatment claim. Olivia Chung, The Lopsided International Investment Law Regime and
Its Effect on the Future of Investor-State Arbitration, 47 VA. J. INT’L L. 953, 961 (2007)
(quoting CMS Gas Transmission Co. v. Argentine Republic, ICSID Case No. ARB/01/8,
Award
of
the
Tribunal,
¶
274
(May
12,
2005),
http://www.worldbank.org/icsid/cases/CMS_Award.pdf) (citing Carlos G. Garcia, All the
Other Dirty Little Secrets: Investment Treaties, Latin America, and the Necessary Evil of
Investor-State Arbitration, 16 FLA. J. INT’L L. 301, 306 (2004)) (“Fair and equitable
treatment clauses…have become ‘black holes of investment treaties’ that invite a flood of
litigation not originally contemplated by developing countries.”).
786
See generally ROLAND KLÄGER, FAIR AND EQUITABLE TREATMENT
INTERNATIONAL INVESTMENT LAW (Cambridge University Press 2011).
IN
787
See, e.g., Ioana Tudor, THE FAIR AND EQUITABLE TREATMENT STANDARD IN THE
INTERNATIONAL LAW OF FOREIGN INVESTMENT (2011). The author cogently asserts that
FET is separate and distinct from IMS and points to, inter alia, the aberrant development
of the standard as being one that first was codified and only subsequently forming part of
customary international law, in contrast with the converse conceptual development
pursuant to which customary international law principles are later codified, as part of the
grounds that give rise to this confusion. Yet, Kläger in turn observes:
It might well be that in some circumstances in which the international
minimum standard is sufficiently elaborate and clear, the standard of
fair and equitable treatment might be equated with it. But in other
cases, it might as well be the opposite, so that the fair and equitable
treatment standard will be more precise than its customary international
law forefathers.
Kläger, supra note 788 at 81. Here, Kläger suggests that the evolutionary development of
the standard is one from customary international law to conventional international law. In
material contrast to Tudor, Kläger further asserts:
EAST\64724221. 3285
different, what is the difference? May the difference have any effect on
damages/quantum?788 Numerous other rudimentary issues concerning the
standards of protection accorded to foreign investor/investment plague
BITs and, in considerable measure, result from the ad hoc interrelationship
among the approximately 3,000 BITs that are not centralized or otherwise
negotiated pursuant to consensus or a coordinated format-protocol. The
invariable consequences of this want of rigor that tends to weaken Host
States by exposing them to unforeseen causes of action lacking predictive
value and that never were contemplated by the BIT parties.
Ironically, as to the public purpose doctrine, this lack of structural
soundness and conceptual and doctrinal consistency have empowered Host
States by amplifying the space of their regulatory sovereignty.
2.
The Findings of Empirical Analysis of Public Purpose
in BIT Clauses
The methodology used in this writing to ascertain the status of the
various iterations of the public purpose doctrine contained in BITs was
limited to the selection of exactly 319 BITs (“the Sample BITs”) from
different parts of the world so as to ensure a juridically broad-based
representative sample.789 In total, eight discernible public purpose
doctrinal categories were identified.790 A ninth public purpose doctrine
On many occasions, the issue will not even be whether the fair and
equitable treatment standard is different or more demanding than the
customary standard, but only whether it is more specific, less generic
and spelled out in a contemporary fashion so that its application is more
appropriate to the case under consideration. This does not exclude the
possibility that the fair and equitable treatment standard imposed under
a treaty can also eventually require a treatment additional to or beyond
that of customary law. Such does not appear to be the case with the
present dispute, however. The very fact that recent interpretations of
investment treaties have purported to change the meaning or extent of
the standard only confirms that, those instruments aside, the standard is
or might be a broader one.
Id.
788
See generally Martinez-Fraga, supra note 51, at 61 (discussing the “uncertainty
pervading in basic clauses contained in BITs because of the fractured and fragmented
BITs framework.”).
789
These treaties have been identified and listed in alphabetical order in a chart format
forming part of Appendix II, entitled “An Empirical Review of the Preeminence of the
Public Purpose Doctrine Throughout the Ever-Expanding Universe of Bilateral
Investment Treaties.”
790
The eight exceptions in the form of public purpose doctrine iterations were the
following: (i) environmental and labor, (ii) limited specific public purpose exceptions,
(iii) no relaxation of existing public purpose measures, (iv) general exceptions, (v)
security exceptions (vi) exceptions for transfers, (vii) prudential financial measures
EAST\64724221. 3286
exception appeared with considerable regularity in the preamble of certain
BITs concerning the principle of sustainable development.791
Within the universe of the nine BIT public purpose doctrine iterations and
clauses identified, five categories of the public purpose doctrine were most
recurrent: (i) the principle of sustainable development alone or in
conjunction with health, safety and environment, or labor;792 (ii)
environment and labor;793 (iii) limited public purpose exceptions;794 (iv)
no relaxation for health, safety, or environment;795 and (v) clarification of
indirect expropriation.796 Analysis of the Sample BITs’ treatment of the
public purpose doctrine demonstrates that the BIT network tends to favor
the interests of Host States because of their respective reliance on the
public purpose doctrine as an organizing principle regulating the exercise
of regulatory sovereignty. While a number of the Sample BITs did not
exceptions, and (viii) clarification of indirect expropriation exceptions. Each exception is
analyzed and exemplified in at least one form in Appendix II.
791
The Agreement Between Canada and Jordan for the Promotion and Protection of
Investments, by way of example, in the preamble States:
RECOGNIZING that the promotion and the protection of investments
of investors of one Party in the territory of the other Party will be
conducive to the simulation of mutually beneficial business activity, to
the development of economic cooperation between them and to the
promotion of sustainable development.
Canada-Jordan BIT, supra note 546, preamble.
792
Appendix II at 2. See, e.g., Canada-China BIT, supra note 546, preamble.
793
Appendix II at 3. See,, e.g., Agreement Between the Government of Canada and the
Government of the Republic of Armenia for the Promotion and Protection of Investments
art.
XVII
¶
2,
Can.-Arm.,
May
8,
1997,
http://unctad.org/sections/dite/iia/docs/bits/canada_armenia.pdf [hereinafter CanadaArmenia BIT].
794
Appendix II at 3. See, e.g., Canada-Jordan BIT, supra note 546, art. VII ¶ 2.
795
Appendix II at 4. See,, e.g., Canada-Jordan BIT, supra note 546, art. XI; Agreement
Between the Belgium-Luxembourg Economic Union and the Republic of Colombia on
the Reciprocal Promotion and Protection of Investments art. VII, Bel.-Col., Feb. 4, 2009,
http://www.unctad.org/sections/dite/iia/docs/bits/Belgium_colombia.pdf
[hereinafter
Belgium-Colombia BIT].
796
Appendix II at 8. See, e.g., Canada-China BIT, supra note 546, annex B.10
(“Expropriation”); Agreement for the Promotion and Protection of Investments Between
the Republic of Colombia and the Republic of India art. 6 ¶ 2(iv), Colom.-Ind., Nov. 10,
2009,
http://unctad.org/sections/dite/iia/docs/bits/colombia_india.pdf
[hereinafter
Colombia-India BIT].
EAST\64724221. 3287
contain any public purpose doctrine language or provision,797 it was hardly
uncommon for most BITs containing public purpose based exceptions to
contain different iterations of the doctrine.798 Analyses of each of the
representative public purpose doctrine exceptions contained in BITs as
well as paradigmatic BITs asserting multiple iterations of the public
purpose doctrine, are worth reviewing because they demonstrate a trend
towards (i) broadening regulatory sovereignty, and (ii) promoting a legacy
public purpose doctrine containing exceptions that touch and concern “all
things public,” while preserving the right to a self-judging standard on the
part of the invoking State. It is significant to observe that most of the
Sample BITs containing representative public purpose-based exceptions
are of recent vintage.799
B.
Public Purpose in the Form of Sustainable Development
Language in BITs and Combinations of Sustainable
Development, and Health, Safety & Environment, or Labor.
The Colombia-Japan BIT800 is particularly helpful in analyzing the
scope and content of the public purpose doctrine within BITs, as well as
the multiple iterations of the doctrine within a single treaty. The public
purpose doctrine pervades this BIT. It is an illustrative paradigm because
all of the eight referenced public purpose categories801 are contained in the
treaty; additionally, language referencing the public purpose category of
sustainable development, health, safety and environment, and labor can be
found in the preamble.
The prominence of the public purpose doctrine in this BIT also is
conceptually helpful because the treaty concerns an unqualified
industrialized nation (i.e., Japan) and an economy in transition that no
longer can be classified in economic terms as a “developing country.”802
797
The lack of reference is aside from the standard recitation of the elements of a valid
expropriation that is present in almost every BIT which due to its standardized form and
prevalence was not included in the empirical analysis. For an example of this standard,
see, e.g., Agreement between the Government of Australia and the Government of the
Argentine Republic on the Promotion and Protection of Investments, and Protocol art. 7,
Aus.-Arg.,
Aug.
23,
1995,
available
at
http://www.unctad.org/sections/dite/iia/docs/bits/argentina_australia.pdf.
798
Appendix II at 5-6. See, e.g., Canada-Jordan BIT, supra note 546; Colombia-Japan
BIT, supra note 546.
799
Especially those evincing the sustainable development expression in Appendix II at 2.
800
Colombia-Japan BIT, supra note 546.
801
See supra note 792 & accompanying text.
802
See, e.g., Robert W. McGee , Corporate Governance in Transition and Developing
Economies:
A
Case
Study
of
Colombia
(August
25,
2010),
EAST\64724221. 3288
Signed on September 12, 2011, the treaty is rather recent and fairly can be
deemed to be prototypical of a second-generation BIT. It is also indicative
of contemporary trends concerning the use of the public purpose doctrine
in recent second-generation BITs.
1.
A Rich Preamble: Sustainable Development, Health,
Safety & Environment, and Labor
The preamble to the Colombia-Japan BIT reflects that the parties
intended for the treaty to form part of customary international law.803 This
aspiration, best contextualized by the BIT’s own language, is helpful to
the construction of legal principles that it embodies. Because the parties
viewed this BIT as hopefully “contribut[ing] to the strengthening of
international cooperation with respect to the development of international
rules on foreign investment,”804 it is reasonably certain to assume that
recent developments in customary international law as to foreign
investment were consulted when the respective delegations were
negotiating the BIT.805 This sensitivity to the current status of international
rules on foreign investment as “work in progress” is helpful because it
causes doctrine to be embodied in rules and principles and not just the
particular negotiating issues unique to the parties. There is value to a
http://ssrn.com/abstract=1665056 or http://dx.doi.org/10.2139/ssrn.1665056 (last visited
April 29, 2013) (evaluating Colombia as a transition economy under relevant OECD
standards).
803
The preamble provides:
Wishing that this Agreement will contribute to the strengthening of
international cooperation with respect to the development of
international rules on foreign investment.
Colombia-Japan BIT, supra note 546, preamble. This language suggests that the
signatories viewed the Agreement as having consequences in the international arena
beyond just the parties to the BIT.
804
Id.
805
These types of clauses that overtly State that the parties aspire for the treaty to
contribute to the development of international rules on foreign investment are rare but not
entirely uncommon and Japan seems to be sensitive to them. By way of example, the
Agreement between Japan and the Republic of Peru for the Promotion, Protection and
Liberalization of Investment, signed on November 22, 2008, contains the identical clause:
Wishing that this Agreement will contribute to the strengthening of
international cooperation with respect to the development of
international rules on foreign investment.
Agreement Between Japan and the Republic of Peru for the Promotion, Protection and
Liberalisation
of
Investment,
Per.-Jap.,
Nov.
22,
2008,
http://unctad.org/sections/dite/iia/docs/bits/japan_peru.pdf [hereinafter Japan-Peru BIT].
EAST\64724221. 3289
clause that may remind the parties to the BIT and non-party readers that
the juridical elements of the BIT serve a much broader and even nobler
function, than just that stimulating micro-economic transfers of wealth
between the signatories.
The view of BITs as contributing “to the development of
international rules on foreign investment” comports with the ColombiaJapan BIT’s inclusion, if only by mention in its preamble, of the doctrine
of sustainable development.806 The seemingly all-encompassing broad
scope of the sustainable development expression of the public purpose
doctrine in this clause is studiously accompanied by explicit reference to
maintenance of status quo regulatory sovereignty as to “health, safety and
environmental measures of general application.”807 Consequently, the allencompassing breadth of the doctrine of sustainable development, which,
as suggested, has been construed as justifying regulatory sovereignty in all
spheres so long as such regulation can be said to be reasonably related to
any aspect of economic development, is here materially narrowed. The
qualification “without relaxing health, safety and environmental measures
of general application,” which draws upon the public purpose exceptions
in Article XX of the GATT concerning international trade law, provides
the principle of sustainable development with considerable analytical
support. But for the public purpose categories of security (which arguably
may be said to be contained in “safety and financial soundness”), the
general gamut of exceptions fall under health, safety, and environment.
The reference to sustainable development in the preamble, is a quite
meaningful negotiation accomplishment for the likely host-State:
Colombia. It is possible, and even likely, that the Japanese and Colombian
delegations negotiating the BIT reached an accommodation pursuant to
which the gains secured by the inclusion in the BIT of the principle of
sustainable development were not undermined by relaxing the imported
GATT Article XX exceptions.
This creative preservation of the effects of the scope and content of
the sustainable development iteration of the public purpose doctrine may
result in having practical implications that redound in favor of both home
and Host States, depending on the nature of the majority of the
investments contemplated. In this particular case, the sustainable
806
The preamble in pertinent part provides:
RECOGNIZING that these objectives and the promotion of sustainable
development can be achieved without relaxing health, safety and
environmental measures of general application.
Colombia-Japan BIT, supra note 546, preamble.
807
Id.
EAST\64724221. 3290
development exception, with the qualification of not relaxing health,
safety and environmental measures of general application, perfectly
comports with the FDI expectations of Japan and Colombia, which
primarily (if not exclusively) concern resource development pertaining to
oil and gas, mining, and forestry. According to the Vale Columbia
University Center on Sustainable International Investment, Colombia
received a total of $13.2 billion in FDI in 2011.808 Approximately $7.835
billion of that total was allocated to primary resource development (oil and
gas, forestry and mining).809 Only $987 million were earmarked for
construction and manufacturing, while $4.46 billion was reserved for
financial services and $3.7 billion invested in the hospitality and
infrastructure sectors.810 Assuming that for purposes of this BIT, Japan
contemplates being positioned as the Home State with Colombia serving
as the Host State it would logically follow that the stronger capitalexporting Japanese economy would have negotiated in effect for a freeze
on the exercise of regulatory sovereignty concerning health, safety, and
environmental measures of general application that are most likely to
touch and concern FDI destined for resource development. Support for the
sustainable development doctrine in a form restricted by security and
general financial welfare, in exchange for status quo regulatory
sovereignty as to resource development public purpose subject matters,
makes eminent sense. The very opposite, however, turned out to be the
case.
The Colombia-Japan BIT illustrates the evolution of a negotiation
dynamic pursuant to which underdeveloped countries and economies in
transition enjoy greater negotiating standing. Developing resource-rich
States, while still far less influential than their industrialized counterparts,
have benefitted from a more integrated Global economy that favors and
requires interdependence over independence. This healthy shift is
conducive to greater balance and less disparity between industrialized
States and underdeveloped countries; as such, it requires appreciation
separate and apart from the need to reform public purpose so as to curtail
abuses and corruption perpetuated under the cloak of a greater common
good.
As a second-generation BIT with signatories who have expressed a
sensitivity for the development of international rules governing the
liberalization, promotion, and protection of foreign investment, the use of
808
Miguel Posada Betancourt, Inward FDI in Colombia and its Policy Context 2012,
Vale-Columbia University Center on Sustainable Investment, available at
http://www.vcc.columbia.edu/content/inward-fdi-colombia-and-its-policy-context-2012miguel-posada-betancourt (last visited July 2, 2013).
809
Id.
810
Id.
EAST\64724221. 3291
the public purpose doctrine in different iterations ranging from
international trade law principles garnered from the GATT’s Article XX,
to the principle of sustainable development, or of permanent sovereignty
over natural resources, comports with a trend that witnesses a vast
expansion of the public purpose doctrine nourished by principles not only
extracted from international investment law, but also having their origins
in international trade law and human rights law. The international juridical
culture of investment law now must face the challenges of a broader but
equally ill-defined and self-judging public purpose doctrine that forms part
of customary international law and that has pervaded international
investment law purportedly concerning itself with the promotion and
protection of foreign investment. Here, Japan and Colombia, in some
sense, have attempted to meet this challenge so as to render the public
purpose doctrine workable by skillfully providing a succinct but effective
check on two different manifestations of the public purpose doctrine,
presumably based upon the subject matter of the likely FDI between these
countries. While the result may point to an imbalance between home- and
host-State FDI protection, the tendency favoring greater interdependence
merits acknowledgement as a sign of concrete gains in this field.
A second-generation BIT should be illustrative of a new generation
of Host States enjoying greater bargaining standing with respect to
industrialized States. Many States that historically were accurately termed
“underdeveloped countries” have outgrown this nomenclature. A number
of “underdeveloped countries” have in effect shed that status to become
“economies in transition” or countries approximating industrial-developed
nations. Colombia, Perú, and Brazil serve as helpful examples of such
development in Latin America.811 For example, between 2007 and 2011
Japan experienced a -0.136% growth rate; in stark contrast, Colombia
posted a 4.402% figure.812 Similarly, other resource-rich countries such as
India, México, Perú, Turkey, and Brazil, to name just a few, are
transitioning from developing country status to the more economically
811
AVERAGE GDP GROWTH RATES
China
India
Peru
Turkey
Colombia
Brazil
Chile
Japan
2011
9.3
6.86
6.81
8.5
5.91
2.73
5.99
-0.7
2010
10.4
9.55
8.78
9.16
4
7.53
6.1
4.4
2009
9.2
8.24
0.84
4.83
1.65
0.33
-1.04
-5.53
2008
9.6
3.89
9.8
0.66
3.55
5.17
3.66
-1.04
2007
14.2
9.8
8.91
4.67
6.9
6.1
4.6
2.19
Source: World Bank, World Development Indicators, available at: data.worldbank.org
812
Id.
EAST\64724221. 3292
10.54
7.668
7.028
5.564
4.402
4.372
3.862
-0.136
equipoised posture of being both capital-exporting and capital-importing
States. This enhanced standing would, in part, explain greater bargaining
power on the part of States such as Colombia that in turn would lead to the
inclusion of broad public purpose exceptions into BITs. This negotiating
posture was not contemplated in the preceding generation of BITs.
The preamble to the Colombia-Japan BIT, in addition to raising the
(i) sustainable development public purpose exception, and (ii) the
international trade law GATT exceptions, also references (iii) “labor and
management.”813 The “labor” public purpose exception is tempered by the
conjunctive “and” that both grammatically and substantively combines
labor with management “in promoting investment between the Contracting
Parties.”814 Even though the preamble speaks of the BIT as “the beginning
of a new economic partnership between the Contracting Parties,” but for
the sustainable development iteration of the public purpose doctrine
referenced in the fifth paragraph of the preamble, the totality of the
preamble is framed by the unqualified and predominant objective of
promoting and protecting foreign investment by investors of the
contracting parties. Notwithstanding the explicit reference to the principle
of sustainable development, the purpose of the BIT, as suggested by the
title and preamble, is far removed from seeking to correct historical
asymmetries between the parties. The language “[r]ecognizing the
growing importance of the progressive liberalization of investment for
stimulating initiative of investors and for promoting prosperity and
mutually favorable business activity in the Contracting Parties,” is not
susceptible to being construed as setting forth objectives for the general
growth of underdeveloped countries, correcting historical inequities, or in
any way fostering the promotion of social justice, as suggested by the
African Charter on Human and Peoples’ Rights.815 Thus, the ColombiaJapan BIT, a representative second-generation BIT, incorporates
sustainable development but does so in a qualified manner and always
within the context of the overarching objective of promoting the
liberalization and protection of foreign investment. It does so within a
manifest consciousness of having the BIT contribute to the “development
of international rules on foreign investment.”816
813
814
Colombia-Japan BIT, supra note 546, preamble.
Id.
815
See supra notes 696-707 & accompanying text.
816
Colombia-Japan BIT, supra note 546, preamble .
EAST\64724221. 3293
2.
The GATT Article XX Exceptions in BITs
The GATT international trade law public purpose exceptions now
form part of standard exceptions in BITs.817 As discussed,818 the wholesale
importation of the GATT Article XX international trade law exceptions
into second-generation BITs materially expands the scope and application
of the public purpose doctrine even though the policy objectives of
international trade law materially differ from the goals of international
investment law.819 Vesting the public purpose exceptions in BITs with
these trade law principles contributes to the lack of transparency and
uncertainty that pervades the legacy public purpose doctrine.820
The Colombia-Japan BIT incorporates the GATT Article XX
exceptions in Article 5 (“Performance Requirements”) of the BIT.821 The
explicit reference to the international trade law public purpose exceptions,
within the context of the Colombia-Japan BIT, is particularly problematic
because of the preamble’s explicit reference to these exceptions as status
817
Appendix II at 5. See, e.g., Agreement Between the Government of Canada and the
Government of the Kingdom of Thailand for the Promotion and Protection of
Investments
art.
XVII
¶
3,
Can.-Thai.,
Jan.
17,
1997,
http://www.unctad.org/sections/dite/iia/docs/bits/canada_thailand.pdf
[hereinafter
Canada-Thailand BIT].
818
See discussion supra at Chapter 1.F.
819
See note 128 & accompanying text.
820
The Appendix reflects the number of representative Sample BITs that have adopted
language substantially similar to the GATT Article XX exceptions: no less than nineteen
BITs. See Appendix II at 9-15.
821
Article 5, Paragraph 6 reads:
6.
Provided that such measures are not applied in an arbitrary or
unjustifiable manner and provided that such measures do not
constitute a disguised restriction on international trade or
investment activities, nothing in subparagraphs 1(b), (c) and (f)
and 2(a) and (b) shall be construed to prevent a Contracting Party
from adopting or maintaining measures, including environmental
measures:
(a) necessary to secure compliance with laws and regulations that
are not inconsistent with the provisions of this Agreement;
(b) necessary to protect human, animal or plant life or health; or
(c) related to the conservation of living or non-living exhaustible
natural resources.
Colombia-Japan BIT, supra note 546, art. 5 ¶ 6.
EAST\64724221. 3294
quo categories that are not to be relaxed or altered. The preamble
specifically States:
Recognizing that these objectives and the promotion of
sustainable development can be achieved without relaxing
health, safety and environmental measures of general
application.822
The term “without relaxing” if construed as meaning without altering
standards so as to meet the exigencies of health, safety and environmental
concerns while simultaneously providing the Home State with the security
arising from the transparency of knowing that standards governing these
exceptions shall remain constant, presumably as of the time frame
culminating in the BIT’s execution. An interpretation of the term “without
relaxing” as meaning “without compromising or diminishing,” but not
including a limit on enhancing or increasing regulatory activity as to
health, safety, and environmental measures, is the most reasonable and
universal interpretation.823 Pursuant to this understanding of the text, a
Host State would be privileged to increase, and not just maintain at status
quo, regulatory measures pertaining to health, safety and the environment.
This reading would comport with an expanded and proactive view of the
public purpose doctrine as set forth in Article 5(6)(a)(b) of the BIT vesting
the Host State with plenary regulatory sovereignty to regulate human,
animal or plant life or health to the likely detriment of the Host State’s
obligation to protect foreign investment/investor and other incident
interests pertaining to the Home State. The enhancement of regulatory
sovereignty could most efficiently be tempered to protect foreign
investments/investors by developing a substantive public purpose doctrine
that is not self-judging and applied pursuant to a proportionality test. The
gamut of Article XX GATT exceptions also would have to be viewed as
applying in the context of macroeconomic scenarios and not just to the
microeconomic events that typically characterize foreign direct
investments falling within the ambit of a BIT
A second methodology that would limit the exercise of regulatory
sovereignty pertaining to human, animal or plant life or health would arise
from an exhaustive disclosure on the part of contracting States of their
regulatory framework. Here, transparency is paramount. Such disclosure
or transparency, however, is hardly achievable even at a theoretical level.
822
Id. preamble.
823
The last paragraph of the Colombia-Japan BIT contained in Article 44 provides that
all texts in the Japanese, Spanish, and English languages are “equally authentic,” but that
“in case of any divergency, the English text shall prevail.” Id. art. 44. The Spanish
language exemplar refers to “without relaxing” as “disminución,” meaning diminishing
or reducing.
EAST\64724221. 3295
Regime change, among many other political factors, would render the
most pristine rendition of a regulatory rubric materially less than fully
predictable or certain not to infringe upon foreign investments/investors.
Attaining the highest possible level of transparency, despite the likelihood
of securing absolute certainty arising from complete transparency, still
should play a greater role in key BIT clauses where the public purpose
doctrine is likely to be relied upon as a source for expanding regulatory
sovereignty.824
A third approach to placing reasonable constraints on regulatory
sovereignty as to human, animal or plant life or health in connection with
transparency in regulatory rubric disclosure would be to substitute the
term “without relaxing,” as it appears in the fifth paragraph of the
Colombia-Japan BIT, with the term “without altering existing status
quo….” Placing “a ceiling” on the quality and nature of regulatory
measures concerning specific subject matter, i.e., health, safety and
environmental measures, by referencing a particular and known status quo
certainly would contribute to a reasonable restraint on the use of this
public purpose regulatory principle and its relation to obligations in favor
of foreign investors/investments protection.
The environment and labor exceptions are very much discernible
in second-generation BITs.825 The two most common clauses containing
824
While a sensitivity for transparency with respect to regulatory sovereignty has
appeared in BITs, the principle of transparency is yet to realize its full potential in this
regard. The Colombia-Japan BIT, for example, references a need for transparency in the
very preamble:
Intending to further create stable, equitable, favorable and transparent
conditions for greater investment by investors of one Contracting Party
in the Area of the other Contracting Party.
Id. preamble (emphasis supplied).This cursory reference in the preamble is still a far cry
from a comprehensive disclosure requirement.
825
See, e.g., Agreement Between Japan the Laos People’s Democratic Republic for the
Liberalisation, Promotion and Protection of Investment art. 24, Jap.-Laos, Jan. 16, 2008,
http://www.unctad.org/sections/dite/iia/docs/bits/Japan_Laos.pdf [hereinafter Japan-Laos
BIT]:
The Contracting Parties recognise that it is inappropriate to encourage
investment by investors of the other Contracting Party by relaxing
environmental measures. To this effect each Contracting Party should
not waive or otherwise derogate from such environmental measures as
an encouragement for the establishment, acquisition or expansion in its
Area of investments by investors of the other Contracting Party.
See also Treaty Between the Government of the United States of America and the
Government of the Republic of Rwanda Concerning the Encouragement and Reciprocal
EAST\64724221. 3296
the environmental exception can be found in the Canada-Armenia BIT826
and the Colombia-UK BIT.827 The Canada-Armenia BIT provides:
Nothing in this Agreement shall be construed to prevent a
Contracting Party from adopting, maintaining or enforcing
any measure otherwise consistent with this Agreement that
it considers appropriate to ensure that investment activity is
undertaken in a manner sensitive to environmental
concerns.828
The Colombia-UK BIT reads:
Protection of Investment art. 12 ¶ 2 , USA-Rwa., Feb. 19, 2008,
http://www.unctad.org/sections/dite/iia/docs/bits/US_Rwanda.pdf [hereinafter USARwanda BIT] (“Nothing in this Treaty shall be construed to Prevent a party from
adopting, maintaining, or enforcing any measure otherwise consistent with this Treaty
that it considers appropriate to ensure that investment activity in its territory is
undertaken in a manner sensitive to environmental concerns”); Agreement Between the
Government of the United Arab Emirates and the Government of the Republic of
Azerbaijan on the Promotion and Reciprocal Protection of Investments art. 16, UAEAze.,
Nov.
20,
2006,
http://www.unctad.org/sections/dite/iia/docs/bits/UAE_azerbaijan.pdf [hereinafter UAEAzerbaijan] (“Nothing in this Agreement shall prevent a Contracting Party from applying
measures according to its laws and regulations in order to protect…environment.”);
Agreement Between the Government of Canada and the Government of the Republic of
Costa Rica for the Promotion and Protection of Investments annex I.III ¶ 1, Can. – C.R.,
Mar. 18, 1998, http://www.unctad.org/sections/dite/iia/docs/bits/canada_costarica.pdf
[hereinafter Canada-Costa Rica BIT] (“Nothing in this Agreement shall be construed to
prevent a Contracting Party from adopting, maintaining or enforcing any measure
otherwise consistent with this Agreement that it considers appropriate to ensure that
investment activity in its territory is undertaken in a manner sensitive to environmental
concerns.”); Agreement Between the Government of Canada and the Government of
Barbados for the Reciprocal Promotion and Protection of Investment art. XVII ¶ 2 , Can.Bar.,
May
29,
1996,
http://www.unctad.org/sections/dite/iia/docs/bits/canada_barbados.pdf
[hereinafter
Canada-Barbados BIT] (same); Agreement Between the Government of the Republic of
Hungary and the Government of the Russian Federation for the Promotion and
Reciprocal Protection of Investments art. 2 ¶ 3, Hun.-Rus., Mar. 6, 1995,
http://www.unctad.org/sections/dite/iia/docs/bits/hungary_russia.pdf [hereinafter RussiaHungary BIT] (“This Agreement shall not preclude the application of either Contracting
Party of measures, necessary for…protection of the environment.”).
826
Canada-Armenia BIT, supra note 795, art. XVII ¶ 2.
827
Bilateral Agreement for the Promotion and Protection of Investments Between the
Government of the United Kingdom of Great Britain & Northern Ireland and the
Republic
of
Colombia
art.
VIII,
U.K.-Col.,
Mar.
17,
2010,
http://www.unctad.org/sections/dite/iia/docs/bits/colombia_united%20kingdom.pdf
[hereinafter UK-Colombia BIT].
828
Canada-Armenia BIT, supra note 795, art. XVII ¶ 2.
EAST\64724221. 3297
Nothing in this Agreement shall be construed to prevent a
Party from adopting, maintaining or enforcing any measure
that it considers appropriate to ensure that an investment
activity in its territory is undertaken in a manner sensitive
to environmental concerns, provided that such measures are
non-discriminatory and proportionate to the objectives
sought.829
The Colombia-UK BIT represents the more stringent, and, therefore,
balanced approach to the exception. It provides for two fundamental
qualifying elements that must be met by the Host State. First, the measure
must be non-discriminatory. Second, it must be “proportionate to the
objectives sought.”830 Those qualifications are helpful and conducive to a
balanced approached that takes into consideration the interests of both
home and Host States. The non-discriminatory and proportionality
strictures bespeak an objective methodology that wrests presumptions of
correctness from the invoking State based upon the assumption that States
are better placed to evaluate public purpose needs. Also, proportionality
represents an important contribution towards mitigating the “all or
nothing” approach that historically has categorized the unilateral
application of public purpose exceptions on the part of Home States.
This approach to the environmental iteration of the public purpose
doctrine is laudable but far from representative of a mainstream approach
despite its clearly discernible recurrence among the Sample BITs, albeit in
the context of clarifications or annexes.831 The paradigmatic secondgeneration Colombia-Japan BIT, for example, dispenses with the very
valuable “proportionality” restriction but qualifies exercise of regulatory
sovereignty by proscribing (i) arbitrariness, (ii) lack of foundation as to
manner, and (iii) an indirect or “disguised” constraint on international
trade or investment:
Provided that such measures are not applied in an arbitrary
or unjustifiable manner and provided that such measures do
not constitute a disguised restriction on international trade
or investment activities, nothing in subparagraphs 1(b), (c)
and (f) and 2(a) and (b) shall be construed to prevent a
829
UK-Colombia BIT, supra note 829, art. VIII.
830
Id.
831
See, e.g., Canada-Peru BIT, supra note 546, annex IV ¶ (c); Treaty Between the
United States of America and the Republic of Mozambique Concerning the
Encouragement and Reciprocal Protection of Investment Protocol ¶ 1, USA-Moz., Dec.
1,
1998,
http://www.unctad.org/sections/dite/iia/docs/bits/us_mozambique.pdf
[hereinafter USA-Mozambique BIT].
EAST\64724221. 3298
Contracting Party from adopting or maintaining measures,
including environmental measures:
(a)
necessary to secure compliance with laws and
regulations that are not inconsistent with the
provisions of this Agreement;
(b)
necessary to protect human, animal or plant life or
health; or
(c)
related to the conservation of living or non-living
exhaustible natural resources.832
The three qualifying requirements need to be balanced against a
considerable subject matter gamut ranging from enforcement of laws and
regulations consistent with the BIT, to ¨the conservation of living and nonliving exhaustible natural resources.”833 The use of the GATT Article XX
language to define the scope of contemplated regulatory measures is not
suggestive of balanced symmetrical allocation of rights between home and
Host States.
Conceptually, it is not clear what general environmental measures
may reasonably pertain to performance requirements, which is the
centerpiece subject matter of Article V of the BIT. The Article V
“Performance Requirements” concern international commercial trade
issues such as: (i) level or percentage of goods or services to be
exported;834 (ii) level or percentage of domestic content to be achieved,835
(iii) requirements to purchase, use or accord a preference to goods
produced in a strategic area;836 (iv) requirements pertaining to the volume
or value of imports and exports;837 (v) restrictions on sales of goods or
services in a particular Home State geographic market that investments of
the investor produce or in any way relating to the volume or value of
foreign exchange earnings;838 and (vi) the transfer of proprietary
knowledge within the subject area save for specifically excepted
832
Colombia-Japan BIT, supra note 546, art. V ¶ 6. .
833
Id. art. V ¶ 6(a)-(c).
834
Id. art. V ¶ 1(a).
835
Id. art. V ¶ 1(b).
836
Id. art. V ¶ 1(c).
837
Id. art. V ¶ 1(d).
838
Id. art. V ¶ 1(e).
EAST\64724221. 3299
requirements.839 These categories of limits on performance requirements
are not directly, or conceptually, at all related to issuance of environmental
measures. The mention of the environmental exception expression of the
public purpose doctrine in this context merely serves to broaden Home
State regulatory sovereignty. The very generic and conventional reference
to “environmental measures” coupled with the shortcomings of the legacy
public purpose doctrine all serve to multiply the disproportionate effect of
the exception.
The Sample BITs identify a third category of “limited public
purpose exceptions.”840 At a discernible level, this category of limited
public purpose exceptions nicely fits into two narrow categories: (i)
exceptions from performance requirements841 and (ii) exceptions from
839
Id. art. V ¶ 1(f). Performance requirements concerning the transfer of technology are
qualified as follows:
… except when the requirement:
(i) is imposed or enforced by a court, administrative tribunal or
competent authority to remedy an alleged violation of competition
laws; or
(ii) concerns the transfer or use of intellectual property rights or
disclosure of proprietary information which is undertaken in a manner
not inconsistent with the TRIPS Agreement.
Id.
840
Appendix II at 3.
841
See, e.g., Canada-Jordan BIT, supra note 546, art. 7 ¶ 2; Canada-Perú BIT, supra note
546, art. 7 ¶ 2; Treaty Between the Federal Republic of Germany and Antigua & Barbuda
Concerning the Encouragement and Reciprocal Protection of Investments Protocol ad art.
3
¶
(a),
Ger.-Ant.,
Nov.
5,
1998,
http://www.unctad.org/sections/dite/iia/docs/bits/germany_barbuda_gr_eng.pdf
[hereinafter Germany-Antigua & Barbuda BIT]; Agreement Between the Federal
Republic of Germany and the People’s Republic of Bangladesh Concerning the
Promotion and Reciprocal Protection of Investments Protocol ad art. 2 ¶ (a), Ger.-Ban.,
May 8, 1981, http://www.unctad.org/sections/dite/iia/docs/bits/germany_bangladesh.pdf
[hereinafter Germany-Bangladesh BIT]; Agreement Between Barbados and the Federal
Republic of Germany Protocol ad art. 3 ¶ (a), Ger.-Bar., Dec. 2, 1994, available at
http://www.unctad.org/sections/dite/iia/docs/bits/germany_barbados.pdf
[hereinafter
Germany-Barbados BIT]; Agreement Between the Federal Republic of Germany and
Benin Concerning the Promotion and Reciprocal Protection of Capital Investment
Protocol
ad
art.
2
¶
(a),
Ger.-Ben.,
Jun.
28,
1978,
http://www.unctad.org/sections/dite/iia/docs/bits/germany_benin.pdf
[hereinafter
Germany-Benin BIT]; Treaty Between the Federal Republic of Germany and the Federal
Democratic Republic of Ethiopia Concerning the Encouragement and Reciprocal
Protection of Investments art. 3 ¶ 3, Ger.-Eth., Jan. 19, 2004,
http://www.unctad.org/sections/dite/iia/docs/bits/germany_ethiopia.pdf
[hereinafter
Germany-Ethiopia BIT]; Treaty Between the Federal Republic of Germany and the Cooperative Republic of Guyana Concerning the Encouragement and Reciprocal Protection
of Investments Protocol ad art. 3 ¶ (a)(3), Ger.-Guy., Dec. 6, 1989,
EAST\64724221. 3300
national treatment.842 The Canada-Jordan BIT843 in Article 7(2) is
illustrative of the core language of the performance requirements
exceptions. It reads:
A measure that requires an investment to use a technology
to meet generally applicable health, safety or environmental
requirements shall not be construed to be inconsistent with
subparagraph 1(f) [Performance Requirements].844
The totality of the performance requirements exception articulated in
Article 7 of the Canada-Jordan BIT is quite extensive and mirrors that of
the Colombia-Japan BIT as to key material terms.845 The Canada-Jordan
BIT, executed in 2009, approximately two years prior to the signing of the
http://www.unctad.org/sections/dite/iia/docs/bits/germany_guyana.pdf
[hereinafter
Germany-Guyana BIT]; Agreement Between the Lebanese Republic and the Federal
Republic of Germany on the Promotion and Reciprocal Protection of Investments
Protocol
ad
art.
3
¶
(a)(3),
Ger.-Leb.,
Mar.
18,
1997,
http://www.unctad.org/sections/dite/iia/docs/bits/germany_lebanon.pdf
[hereinafter
Germany-Lebanon BIT]; Agreement Between the United Mexican States and the Federal
Republic of Germany on the Promotion and Reciprocal Protection of Investments
Protocol
ad
art.
3
¶
(a),
Ger.-Mex.,
Aug.
25,
1998,
http://www.unctad.org/sections/dite/iia/docs/bits/germany_mexico.pdf
[hereinafter
Germany-Mexico BIT]; Agreement Between the Federal Republic of Germany and the
Republic of the Philippines for the Promotion and Reciprocal Protection of Investments
Protocol
ad
art.
3
¶
(a),
Ger.-Phi.,
Apr.
18,
1997,
http://www.unctad.org/sections/dite/iia/docs/bits/germany_philippines.pdf
[hereinafter
Germany-Philippines BIT]; Agreement Between Japan and the People’s Republic of
China Concerning the Encouragement and Reciprocal Protection of Investment Protocol
¶
3,
Jap.-Chi.,
Aug.
27,
1988,
http://www.unctad.org/sections/dite/iia/docs/bits/china_japan.pdf [hereinafter JapanChina BIT].
842
See e.g., Agreement on the Reciprocal Promotion and Protection of Investments
Between the Kingdom of Spain and the Federal Republic of Nigeria art. 5 ¶ 4, Spa.-Nig.,
Jul.
9,
2002,
http://www.unctad.org/sections/dite/iia/docs/bits/spain_nigeria.pdf
[hereinafter Spain-Nigeria BIT]; Treaty Between the Federal Republic of Germany and
the Federal Republic of Nigeria Concerning the Encouragement and Reciprocal
Protection of Investments Protocol ad art. 4 ¶ (a), Nig.-Ger., Mar. 28, 2000,
http://www.unctad.org/sections/dite/iia/docs/bits/germany_nigeria.pdf
[Hereinafter
Nigeria-Germany BIT]; Agreement Between the Government of the Kingdom of
Thailand and the Government of the Russian Federation on the Promotion and Reciprocal
Protection of Investments art. 3 ¶ 3, Rus.-Tha., Oct. 17, 2002,
http://www.unctad.org/sections/dite/iia/docs/bits/russia_thailand.pdf
[hereinafter
Thailand-Russia BIT].
843
Canada-Jordan BIT, supra note 546, art. 7 ¶ 2.
844
Id.
845
See infra Appendix I for a comparison of the Performance Requirements provision in
the Canada-Jordan BIT with the corresponding provision in the Colombia-Japan BIT.
EAST\64724221. 3301
Colombia-Japan BIT, also is a paradigmatic second-generation BIT.
Accordingly, even within the presumably narrow subject matter
constraints of the very technical performance requirements public purpose
exception, “health, safety or environmental requirements”846 of GATT
origin are comingled with a broad spectrum of performance requirements
subject matter exceptions, much like the Article 5(6) performance
requirements of the Colombia-Japan BIT.847
-- The second limited public purpose exception is found as
tempering the National Treatment standard. The Sample BITs do vary
considerably as to the role of public purpose in connection with national
treatment. While, for example, second-generation BITs such as the
Canada-Jordan BIT and the Colombia-Japan BIT are silent in referencing
any iteration of the public purpose doctrine as a qualifying factor as to
National Treatment,848 the U.K.-Colombia BIT and the Germany-Antigua
& Barbuda BIT explicitly temper the National Treatment obligation
pursuant to the relatively broad construction of the public purpose
doctrine. The U.K.-Colombia provides:
The provision of this Agreement relative to the grant of
treatment not less favourable than that accorded to
investors of either Contracting Party or of any third State
shall not be construed so as to preclude the adoption or
enforcement by a Contracting Party of measures which are
846
Canada-Jordan BIT, supra note 546, art. 7 ¶ 2.
847
Colombia-Japan BIT, supra note 546, art. 5 ¶ 6.
848
In both of these BITs (Colombia-Japan and Canada-Jordan), the substantive obligation
of National Treatment does not contain, nor is it followed, by qualifying public purpose
exceptions. The same holds true for the closely related substantive obligation of MostFavored-Nation Treatment. Article 3 (“Most-Favored-Nation Treatment”) of the
Colombia-Japan BIT nearly qualifies Most-Favored-Nation Treatment by noting that the
treatment applies only to substantive and not to procedural obligations, by asserting the
following “Note”:
It is understood that the treatment referred to in paragraph 1 does not
include treatment accorded to investors of a non-Contracting Party and
their investments by provisions concerning the settlement of investment
disputes such as the mechanisms set out in Chapter III and Chapter IV
that are provided for in other international agreements between a
Contracting Party and a non-Contracting Party.
Colombia-Japan BIT, supra note 546, art. 3 bis.
EAST\64724221. 3302
necessary to protect national security, public security or
public order.849
Similarly, the older Germany-Antigua & Barbuda BIT, originally signed
in 1998 and amended by protocol in 2000, notably amends Article III at
Protocol Ad Article 3(a) by asserting:
The following shall more particularly, though not
exclusively, be deemed ‘activity’ within the meaning of
Article III (2): The Management, Maintenance, Use,
Enjoyment and Disposal of an Investment. The following
shall, and particularly, be deemed ‘treatment thus
favourable’ within the meaning of Article III: Unequal
Treatment in the Case of Restrictions on the Purchase of
Raw or Auxiliary Materials, of Energy or Fuel or of Means
of Production or of Operation of Any Kind, unequal
treatment in the case of impeding in the marketing of
products inside or outside the country, as well as any other
measures having similar effects. Measures that have to be
taken for reasons of public security or order, public health
or morality shall not be deemed “treatment less favorable’
within the meaning of Article III.850
Both the U.K.-Colombia BIT and the Germany-Antigua &
Barbuda BIT suggest that “treatment not less favorable than that accorded
to investors of either Contracting Party,” is warranted, and, therefore, it
does not constitute treatment any less favorable where the public purpose
doctrine must be resorted to on a compulsory or mandatory basis. Neither
BIT uses the words “compulsory” or “mandatory,” but the same
849
UK-Colombia BIT, supra note 829, art. IV ¶ 1. Article IV (“Exceptions”) is
immediately preceded by the Article III recitation of the substantive Most-FavouredNation provision stating:
1. Each Contracting Party shall grant to the investments of investors
of the other Contracting Party made in its territory, a treatment not less
favourable than that accorded, in like circumstances, to investments of
its own investors or to investments of investors of another third State,
whichever is more favourable to the investor.
2. The most favourable treatment to be granted in like circumstances
referred to in this Agreement does not encompass mechanisms for the
settlement of investment disputes, such as those contained in Articles
IX and X of this Agreement, which are provided for in treaties or
international investment agreements.
Id. art. IIII.
850
Germany-Antigua & Barbuda BIT, supra note 845, Protocol ad art. 3 ¶ (a).
EAST\64724221. 3303
construction can be placed with respect to the word “necessary” in the
case of the U.K.-Colombia BIT and the phrase “have to be taken” as to the
Germany-Antigua & Barbuda BIT. This “mandatory” predicate to some
extent does remove recourse to the public purpose doctrine from the ambit
of self-judgment. Even though a sovereign itself is best placed to assess
national exigencies, the compulsory nature of a necessity indeed engrafts
meaningful objective criteria into the process.
The broad conceptual categories of public purpose qualifying
national treatment in both BITs merit emphasis. The potential use of (i)
public security, (ii) public health, (iii) public morality, (iv) national
security, (v) public security, and (vi) public order, enable a rich set of
possibilities on which to premise the exercise of regulatory sovereignty in
ways that may invade treaty obligations to protect foreign investment.851
Even the notable, omitted categories—such as environment, human and
animal life and health—arguably may fall within the ambit of the public
purpose iterations listed. Taken together, the exceptions from performance
requirements and national treatment pervading many of the secondgeneration BITs form three fundamental propositions underlying this
writing. First, the public purpose doctrine materially dilutes treaty
obligation protections running in favor of investors (i) because of the
debilities endemic to the legacy public purpose doctrine and (ii) the actual
incorporation of the doctrine as actual qualifications to protection
standards within the very language of the substantive protection
obligations. Second, the new paradigm of economic interdependence and
the sustained growth enjoyed by a significant number of resource-rich
jurisdictions that formerly were classified as “developing countries” and
now stand as “economies in transition” likely to attain industrializedcountry economic status, has led to greater bargaining power on the part of
prospective Host States that previously were unable to negotiate in pari
materia with their industrialized counterparts. Third, Home State investor
expectations have been, and are likely to continue to be, frustrated because
of the predictive value that the public purpose doctrine in this context
wrests from the substantive standards of investor protection. The
consequence of these three propositions is simple enough. As concerns
regulatory sovereignty, the symmetrical structure that bilateral investment
treaties at least in principle contemplate,, is materially distorted in favor of
Host States.
Lack of relaxation of standard with respect to health, safety, or
environment as one collective category, and for labor as a distinct subject
matter for categorical classification, is well represented in the Sample
851
Compare UK-Colombia BIT, supra note 829, art. IV ¶ 1 with Germany-Antigua &
Barbuda BIT, supra note 845, Protocol ad art. 3 ¶ (a).
EAST\64724221. 3304
BITs.852 In some instances both categories appear together in BITs.853 The
Colombia-Japan BIT is representative of a treaty embracing both
categories:
1.
Each Contracting Party recognizes that it is
inappropriate to encourage investment activities of
investors of the other Contracting Party and of a nonContracting Party by relaxing its domestic health, safety or
environmental measures or by lowering its labor standards.
Accordingly, each Contracting Party should not waive or
otherwise derogate from such measures or standards as an
encouragement for the establishment, acquisition or
expansion of its Area of investments by investors of the
other Contracting Party of a non-Contracting Party.
2.
Each Contracting Party may adopt, maintain or
enforce any measure that it considers appropriate to ensure
852
See, e.g., Belgium-Colombia BIT, supra note 797, art. VII (“Environment”), art. VIII
(“Labour”); Canada-Jordan BIT, supra note 546, art. 11 (“Health, Safety and
Environmental Measures”); Canada-Perú BIT, supra note 546, art. 11 (“Health, Safety
and Environmental Measures”); Agreement Between the Japan and the Republic of Iraq
Guinea for the Promotion and Protection of Investment art. 22, Jap.-Iraq, Jun. 7, 2012,
http://www.unctad.org/sections/dite/iia/docs/bits/japan_iraq.pdf [hereinafter Japan-Iraq
BIT] (“Health, Safety and Environmental Measures and Labour Standards”); JapanPapau New Guinea BIT, supra note 546, art. 22 (“Health, Safety and Environmental
Measures and Labour Standards”);
Japan-Laos BIT, supra note 827, art. 24
(“Environmental Measures”); Japan-Perú BIT, supra note 807, art. 26 (“Health, Safety
and Environmental Measures and Labour Standards”); Agreement Between Japan and the
Socialist Republic of Vietnam for the Liberalization, Promotion and Protection of
Investment
art.
21
(“Environment”),
Jap.-Viet.,
Nov.
14,
2003,
http://www.unctad.org/sections/dite/iia/docs/bits/japan_vietnam.pdf [hereinafter JapanVietnam BIT]; Agreement Between the Swiss Confederation and the United Mexican
States on the Promotion and Reciprocal Protection of Investments Protocol ad. art. 3
(“Health,
Safety
and
Environment”),
Mex.-Swi.,
Jul.
10,
1995,
http://www.unctad.org/sections/dite/iia/docs/bits/mexico_switzerland.pdf
[hereinafter
Mexico-Switzerland BIT]; Agreement Between the Government of the Republic of
Turkey and the Government of the United Republic of Tanzania Concerning the
Reciprocal Promotion and Protection of Investments art. 4 (“Health, Safety and
Environmental
Measures”),
Turk.-Tanz.,
Mar.
11,
2011,
http://www.unctad.org/sections/dite/iia/docs/bits/Turkey_Tanzania.pdf
[hereinafter
Turkey-Tanzania BIT]; USA-Rwanda BIT, supra note 827, art. 12 (“Investment and
Environment”), art. 13 (“Investment and Labour”); Treaty Between the United States of
America and the Oriental Republic of Uruguay Concerning the Encouragement and
Reciprocal Protection of Investment art. 12 (“Investment and Environment”) & art. 13
(“Investment
and
Labour”),
USA-Uru.,
Nov.
5,
2005,
http://www.unctad.org/sections/dite/iia/docs/bits/US_Uruguay.pdf [hereinafter USAUruguay BIT].
853
See, e.g., Japan-Iraq BIT, supra note 854, art. 22; USA-Rwanda BIT, supra note 827,
art. 12 & art. 13.
EAST\64724221. 3305
that investment activities in its Area are undertaken in a
manner not incompatible with its environmental law,
provided that such measure is consistent with this
Agreement.854
The measures on health, safety, environment and labor contained in the
first paragraph of Article 21 speak only of a State “relaxing its domestic”
standards as to the referenced public purpose categories, but does not
speak to enhancing or rendering more stringent any existing standards in
these areas or otherwise introducing new ones. This interpretation is
important, in part because it illustrates the possibly determinative role that
regulatory transparency and attendant diligence by Home State investors
may play in the relationship between capital-exporting and capitalimporting States such as Japan and Colombia.
The commitment to status quo with respect to regulatory measures
concerning the referenced public purpose categories is significantly less
clear in the case Paragraph 2 of Article 21. This paragraph, in addition to
using the phrase “maintain or enforce” also explicitly references measures
that a Contracting Party “may adopt.” The two operative standards for
issuance of measures along these lines are the measure’s (i) compatibility
with the State’s environmental law, and (ii) consistency with the
Agreement (i.e., the Colombia-Japan BIT). Despite a surface semblance of
objective criteria, what may be considered as consistent with the BIT
agreement or compatible with a State’s environmental law is hardly
objectively demonstrable. In most cases, compatibility with a State’s
environmental law presents considerable challenges—not the least of
which is acquiring an understanding of the compatibility between the
measure at issue and the policies underlying “black letter” environmental
law as to consistency with the BIT. A comprehensive analysis may not be
possible without securing the intent of the Agreement’s drafter, which in
turn may not even be possible. Consistency, at least beyond the scope of
physics and mathematics, is a relative term.
Variations on the prescription to relaxation for health, safety or
environment are well-illustrated in Article 11 of the Canada-Jordan
BIT,855 and Article VII of the Belgium-Colombia BIT.856 The non854
Colombia-Japan BIT, supra note 546, art. 21 ¶¶ 1-2 (emphasis supplied).
855
Article 11 of the Canada-Jordan BIT provides:
The Parties recognize that it is inappropriate to encourage investment
by relaxing domestic health, safety or environmental measures.
Accordingly, a Party may not waive or otherwise derogate from, or
offer to waive or otherwise derogate from , such measures as an
encouragement for the establishment, acquisition, expansion or
retention in its territory of an investment of an investor. If a Party
considers that the other Party has offered such an encouragement, it
EAST\64724221. 3306
relaxing of domestic health, safety or environmental measures provision
contained in Article 11 of the Canada-Jordan BIT does not reference any
language suggesting the expansion of regulatory sovereignty, much like
Article 21(1) of the Colombia-Japan BIT. In fact, the language of the two
provisions are materially indistinguishable, but for a reference to labor
standards in Article 21(1).857
may request consultations with the other Party and the two Parties shall
consult with a view to avoiding any such encouragement.
Canada-Jordan BIT, supra note 546, art. 11.
856
Article VII of the Belgium-Colombia BIT provides:
1. Recognising the right of each Contracting Party to establish its own
levels of domestic environmental protection and environmental
development policies and priorities, and to adopt or modify accordingly
its environmental legislation, each Contracting Party shall strive to
ensure that its legislation provides for high levels of environmental
protection and shall strive to continue improving this legislation.
2. The Contracting Parties recognise that it is inappropriate to
encourage investment by relaxing domestic environmental legislation.
Accordingly, each Contracting Party shall ensure that it does not waive
or otherwise derogate from, or offer to waive or otherwise derogate
from, such legislation as an encouragement for the establishment,
maintenance or expansion in its territory of an investment.
3. The Contracting Parties recognize that co-operation between them
provides enhanced opportunities to improve environmental protection
standards.
4. Nothing in this Agreement shall be construed as to prevent a
Contracting Party from adopting, maintaining or enforcing any measure
that it considers appropriate to ensure that an investment activity in its
territory is undertaken in accordance with the environmental law of the
Party.
5. The dispute settlement mechanisms under Articles XII and XIII of
this Agreement shall not apply to any obligation undertaken in
accordance with this Article.
Belgium-Colombia BIT, supra note 797, art. VII.
857
The no-relaxation provisions in BITs attaching to different iterations of the public
purpose doctrine vest the Host State with considerable discretion to adopt labor policies,
laws and regulations that may adversely affect investment/investor protection obligations.
A comprehensive example is provided in Article VIII of the Belgium-Colombia BIT:
1. The Contracting Parties recognize:
EAST\64724221. 3307
The public purpose doctrine is a centerpiece of “General
Exceptions” contained in the Sample BITs.858 In the context of general
exceptions the public purpose doctrine suggests itself in three discernible
modalities: (i) a de minimus expression pursuant to which regulatory
sovereignty is encouraged and justified based upon just basic unqualified
reference to security interests, public health, animal and plant life,;859 (ii) a
more Global iteration of the public purpose doctrine akin to Art. XX of the
GATT;860 and (iii) public purpose in the form of “public order”
a. the right of each Contracting Party to establish its own
domestic labour standards, and to adopt or modify accordingly
its labour legislation;
b. that each Contracting Party shall endeavour to ensure that
the principles set forth in paragraph 6 of Article I
[Internationally Recognized Labour Standards] be recognized
and maintained by its national legislation; and
c. that it is inappropriate to encourage the establishment,
maintenance or expansion in its territory of an investment by
relaxing domestic labour legislation.
2. The Contracting Parties recognize that co-operation between them
provides enhanced opportunities to improve labour standards.
3. Nothing in this Agreement shall be construed as to prevent a
Contracting Party from adopting, maintaining, or enforcing any
measure that it considers appropriate to ensure that an investment
activity in its territory is undertaken in accordance with the labour law
of the Party.
4. The dispute settlement mechanisms under Articles XII and XIII of
this Agreement shall not apply to any obligation undertaken in
accordance with this Article.
Id. art. VIII (emphasis supplied).
858
See, e.g., Canada-Armenia, supra note 795, art. XVII ¶ 3; Canada-Barbados BIT,
supra note 827, art. XVII ¶ 3; Canada-China, supra note 546, art. 33 ¶ 2; Canada-Costa
Rica BIT, supra note 827, annex I.III ¶ 3; Colombia-India BIT, supra note 798, art. 13 ¶
5; Japan-Vietnam BIT, supra note 854, art. 15 ¶ 1.
859
See, e.g., Agreement Between the Government of New Zealand and the Government
of the People’s Republic of China on the Promotion and Protection of Investments art.
11,
NZ-Chi.,
Nov.
22,
1988,
http://www.unctad.org/sections/dite/iia/docs/bits/china_newzealand.pdf [hereinafter New
Zealand-China BIT].
860
See, e.g., Agreement Between the Government of Canada and the Government of the
Kingdom of Thailand for the Promotion and Protection of Investments Art. XVIII ¶
3,Can.-Thai.,
Jan.
17,
1997,
http://www.unctad.org/sections/dite/iia/docs/bits/canada_thailand.pdf
[hereinafter
Canada-Thailand BIT].
EAST\64724221. 3308
language.861 Even though these three exceptions typically appear under an
article entitled “General Exceptions,”862 they are also common to
“catchall” clauses that serve as the functional equivalent to general
exceptions articles in treaties.863
The New Zealand-China BIT, signed November 22, 1988 is clearly
a first-generation BIT; therefore, it is illustrative of negotiation efforts
concerning BITs between industrialized and non-industrialized States at a
time where economic globalization was far from apogee and economic
models were largely based on foundational premises of financial
independence rather than interdependence. The New Zealand-China BIT
presents a helpful example of this economic construction that reflected a
negotiation dynamic that ultimately favored Home States (capitalexporting countries). That BIT’s equivalent to a “General Exceptions”
article is found in Article 11, entitled “Prohibitions and Restrictions,”
which reads:
The provisions of this Agreement shall not in any way limit
the rights of either Contracting Party to apply prohibitions
or restrictions of any kind or take any other action directed
to the protection of its essential security interests, or to the
protection of public health or the prevention of disease and
tests in animals or plants.864
It is not surprising that Host States generally were limited in their ability
to negotiate successfully fundamental premises that amplified the scope of
regulatory sovereignty. Even the title of Article 11 (“Prohibitions and
Restrictions”) could find less customary international law interpretive
recourse than the term “General Exceptions” would be able to garner. Put
simply, it is not altogether disconcerting that in 1988 non-industrialized
States would not have as much standing to negotiate general exceptions as
they would at the height of economic globalization, and the adoption of
financial models that stressed economic interdependence as a material
governing principle.865 Despite the arguably expansive language contained
861
See, e.g., Colombia-Japan BIT, supra note 546, art. 15 ¶ 1; Hungary-Russia BIT, supra
note 827, art. 2 ¶ 3.
862
See, e.g., Colombia-Japan BIT, supra note 546, art. 15 ¶ 1; Canada-Thailand BIT,
supra note 862, art. XVIII.
863
See, e.g., New Zealand-China BIT, supra note 861, art. 11 (“Prohibitions and
Restrictions”); Hungary-Russia BIT, supra note 827, art. 2 (“Promotion and Reciprocal
Protection of Investments”).
864
New Zealand-China BIT, supra note 861, art. 11
865
As noted by the United Nations Conference on Trade & Development, “[i]n 2011, FDI
inflows increased in all major economic groups—developed, developing and transition
EAST\64724221. 3309
in Article 11, only three public purpose categories are identified. Of the
three, one addressing animal and plant life, is fairly circumscribed. Even
the remaining two (protection of essential security interests and protection
of public health) by themselves do not stand out as unbridled licenses to
regulate to the detriment of substantive investment/investor protection
obligations.
The use of the public purpose doctrine as a pivotal premise of
treaty-based general exceptions is well-chronicled in Article XVII of the
Canada-Thailand BIT. The broad scope and clear influence of the GATT
expressed in Article XVII commands analysis.866 The general exceptions
economies.” WIR 2012, supra note 423, at 38. However, despite the fact that “[g]lobal
foreign direct investment (FDI) flows exceeded the pre-crisis average in 2011, reaching
$1.5 trillion despite turmoil in the global economy,” such levels were still about 23%
lower than the FDI flows at the peak of economic globalization in 2007. Id. at xi.
866
Article XVII (“Application and General Exceptions”) States:
(1)
This Agreement shall apply to any investment made by an
investor of one Contracting Party in the territory of the other
Contracting Party before or after the entry into force of this Agreement.
(2)
Nothing in this Agreement shall be construed to prevent a
Contracting Party from adopting, maintaining or enforcing any measure
otherwise consistent with this Agreement that it considers appropriate
to ensure that investment activity in its territory is undertake in a
manner sensitive to environmental concerns.
(3)
Provided that such measures are not applied in an arbitrary or
unjustifiable manner or do not constitute a disguised restriction on
international trade or investment, nothing in this Agreement shall be
construed to prevent a Contracting Party from adopting or maintaining
measures, including environmental measures:
(a)
necessary to ensure compliance with laws and regulations
that are not inconsistent with the provisions of this Agreement;
(b)
or
necessary to protect human, animal or plant life or health;
(c)
relating to the conservation of living or non-living
exhaustible natural resources if such measures are made
effective in conjunction with restrictions on the domestic
production or consumption;
(d)
imposed for the protection of national treasures of artistic,
historic or archeological value;
(e)
essential to the acquisition or distribution of products in
general or local short supply provided that any such measures
shall be consistent with the principle that all investors are
entitled to an equitable share of the international supply of such
products, in that any such measures which are inconsistent with
EAST\64724221. 3310
contained in Article XVII of the Canada-Thailand BIT are quite expansive
and arguably all-encompassing. Paragraphs 2 and 3 of Article XVII do
purport to set some kind of limitation on regulatory sovereignty.
Consonant with Paragraph 2, Contracting Parties are proscribed from
adopting or enforcing measures inconsistent with the BIT. Similarly,
Paragraph 3 proscribes the adoption of the enforcement of measures that
are either arbitrary or unjustifiable, as well as measures disguised to
restrict international trade or investment. But for these two sets of
constraints, the public purpose doctrine is asserted in the form of a
verbatim recitation adoption of five fundamental general exceptions from
the GATT’s Art. XX.867
The incorporation of the GATT Article XX General Exceptions represents
an expansive spectrum of public purpose categories that in turn may
justify regulatory sovereignty to the detriment of substantive treaty-based
protection standards. Moreover, the qualifying standard in the double
negative, “not inconsistent with the provisions of this Agreement,”868 does
not meaningfully temper the otherwise boundless public purpose subject
matter exceptions listed in Subsections (3)(b)-(e). In contrast with the base
public purpose exception contained in Article 11 of the China-New
Zealand BIT, public purpose in the form of the GATT’s Article XX
General Exceptions, vests both States (capital-importing countries) with
considerable advantages over foreign investors/investments. This
normative foundation for the exercise of regulatory sovereignty
undermines any legitimate aspiration to “bilateralism” that contracting
parties to a BIT may hope to enjoy. Public purpose, as expressed through
the GATT’s General Exceptions cannot be tempered by even absolute
regulatory transparency (if such a thing in fact existed), and similarly is
incapable of being checked by mere treaty drafting techniques. It does
remain unassailable that the role of public purpose in the form of GATT
Article XX General Exceptions incorporated into a BIT represents a
practically infinite capacity to disappoint investor/investment
expectations, and dangerously favors host-State regulatory sovereignty to
the detriment of substantive foreign investment/investor protection that
theoretically represents the broader goal of a BIT in the first instance.
the other provisions of this Agreement shall be discontinued as
soon as the conditions giving rise to them have ceased to exist.
Canada-Thailand BIT, supra note 862, art. XVII (emphasis supplied).
867
The wholesale incorporation of the GATT’s General Exceptions into the Article XVII
(Application and General Exceptions) of the Canada-Thailand BIT is nothing short of
remarkable. Compare Canada-Thailand BIT, supra note 862, art. XVIII ¶ 3(a)-(e) with
GATT, supra note 19, art. XX(b), (d), (f), (g) & (j).
868
Canada-Thailand BIT, supra note 862, art. XVII(a).
EAST\64724221. 3311
The third variation of the public purpose doctrine appearing in the
form of general exceptions take the form of “public order” language. The
maintenance of public order and the need to protect public morals are
perhaps the potentially most dangerous public purpose expressions
because of their inherently subjective content. At what point does public
order mutate into the repression of the public? What exactly is public
order remains as a classical query that perhaps is incapable of being
satisfactorily at all addressed. Likewise, what is morality? Equally
fundamental, can morality be contracted or legislated in the name of
public purpose? Much like Xeno’s paradoxes, inquiries concerning the
nature of public order or public morality can be posed ad infinitum without
bringing the examiner any closer to a satisfactory resolution.
Public order language appears in the Sample BITs as having two
contextual variants. In the first, exemplified in Article 15(1) of the
Colombia-Japan BIT, public morals and public order are listed as only two
public purpose general exceptions in a long list of public purpose
categories.869 The second variation of the public order exception forming
869
Article 15(1) of the Colombia-Japan BIT reads:
Subject to the requirement that such measures are not applied by a
Contracting Party in a manner which would constitute a means of
arbitrary or unjustifiable discrimination against another Contracting
Party, or a disguised restriction on investments of investors of that
other Contracting Party in the Area of the former Contracting Party,
nothing in this Agreement other than Article 12 [Treatment in Case of
Strife] shall be construed to prevent that former Contracting Party from
adopting or enforcing measures, including those to protect the
environment:
(a)
necessary to protect human, animal, or plant life or health;
(b)
necessary to protect public morals or to maintain public
order;
Note: The public order exception may be invoked only where a
genuine and sufficiently serious threat is posed to one of the
fundamental interests of society.
(c)
necessary to secure compliance with the laws or regulations
which are not inconsistent with the provisions of this Agreement
including those relating to:
(i) the prevention of deceptive and fraudulent practices or to
deal with the effects of a default on contracts;
(ii) the protection of privacy of the individual in relation to
the processing and dissemination of personal data and the
protection of confidentiality of personal records and accounts;
or
(iii) safety; or
EAST\64724221. 3312
part of general exceptions found in BITs is evidenced by Article 2(3) of
the Russia-Hungary BIT. That provision States that the treaty:
[S]hall not preclude the application of either Contracting
Party of measures, necessary for the maintenance of
defence, national security and public order, protection of
the environment, morality, and public health.870
Public order, as part of general exceptions, finds resonance in the Sample
BITs and, to some extent, can be viewed as species of a “catchall” clause
that vests States, most likely Host States, with a quite meaningful license
to exercise regulatory sovereignty to the detriment of substantive investor
protection obligations. The broad theoretical expanse of public order is
evinced by the somewhat recurring practice of qualifying this exception by
noting that its application is limited to instances of extreme emergencies
affecting the State or even its national security. The Colombia-Japan BIT,
by way of example, qualifies its single-sentence reference to public order
(i.e., “necessary to protect public morals or to maintain public order”), by
a most distinctive observation:
Note: The public order exception may be invoked only
where a genuine and sufficiently serious threat is posed to
one of the fundamental interests of society.871
(d)
imposed for the protection of national treasures of artistic,
historic, archeological or cultural value.
Colombia-Japan BIT, supra note 546, art. 15 ¶ 1 (emphasis supplied).
870
Hungary-Russia BIT, supra note 827, art. 2 ¶ 3. This exception is contained in Article
2 (“Promotion and Reciprocal Protection of Investments”), which provides, in full:
1. Each Contracting Party shall encourage and create favourable
conditions for investors of the other Contracting Party to make
investments in its territory and shall admit such investments in
accordance with its laws and regulations.
2. Investments of investors of one Contracting Party shall at all times
be accorded fair and equitable treatment and shall enjoy full protection
and security in the territory of the other Contracting Party.
3. This Agreement shall not preclude the application of either
Contracting Party of measures, necessary for the maintenance of
defence, national security and public order, protection of the
environment, morality and public health.
Id. art. 2 (emphasis supplied).
871
Colombia-Japan BIT, supra note 546, art. 15 ¶ 1 bis.
EAST\64724221. 3313
This qualification is testament to the virtually unbridled foundation for
exercise of regulatory sovereignty that a mere reference to “public order,”
as is the case in most BITs, may cause and thus unsettle expectations and
any aspiration to symmetry and bilateralism to the Contracting Parties. In
this connection, the Colombia-Japan BIT is helpful in illustrating how
treaty drafting techniques may help mitigate the ills of the legacy public
purpose doctrine.872
The three variants of the public purpose doctrine contained in the
“General Exceptions” category illustrate the pivotal role that the public
purpose doctrine plays across expansive subject matter even within one
category. Yet, as with the reference to the doctrine in (i) preambles, (ii)
environment and labor, and (iii) no relaxation clauses, nowhere in the
general exception clauses canvassed among Sample BIT exemplars was
public purpose, in any of its iterations, defined. Similarly, no standard was
referenced as to its application, and very limited linkage to proportionality
was observed.
The fifth public purpose exception notably contained in the Sample
BITs is the security category.873 The security exceptions expression of the
public purpose doctrine comprises five variants: (i) restriction on the
dispute settlement section of the BIT only;874 (ii) a plain Statement
872
The role of treaty-drafting techniques as a partial solution to the disparities the legacy
public purpose doctrine creates is discussed in the context of the principle of sustainable
development. Supra Chapter 2, Subsection E. There it was suggested that treaty-drafting
techniques are, at best, a partial solution to the technical and policy challenges that the
legacy public purpose doctrine poses. Here, in the “public order” context, already a
particular expression of the public purpose doctrine, the contributions of treaty-drafting
techniques can be appreciated, but so too are their limitations revealed. While terms such
as “genuine,” “sufficiently,” “serious,” and “fundamental interests of society,” certainly
engraft a quasi-objective standard against which to determine juridical legitimacy, they
are far from conclusive. The virtues, however, of first steps in the direction of objectivity
cannot be sufficiently praised.
873
See, e.g., Canada-China BIT, supra note 546, art. 33 ¶ 5; Canada-Jordan BIT, supra
note 546, art. 10 ¶ 4; Canada-Peru, supra note 546, art. 10 ¶ 4; New Zealand-China BIT,
supra note 861, art. 11; Agreement Between the Government of the People’s Republic of
China and the Government of the Republic of Singapore on the Promotion and Protection
of
Investments
art.11,
Chi.-Sing.,
Nov.
21,
1985,
http://www.unctad.org/sections/dite/iia/docs/bits/china_singapor.pdf [hereinafter ChinaSingapore BIT]; Belgium-Colombia BIT, supra note 797, art. II ¶ 3; Colombia-India
BIT, supra note 798, art. 13 ¶ 5(d); Colombia-Japan BIT, supra note 546, art. 15 ¶ 2;
Croatia-Azerbaijan BIT, supra note 546, art. 10; Agreement Between the Government of
the Slovak Republic and the Government of the Republic of Kenya for the Promotion and
Reciprocal Protection of Investments art. 14 ¶ 1, Slo.-Ken., Dec. 14, 2011,
http://www.unctad.org/sections/dite/iia/docs/bits/Slovakia_Kenya.pdf
[hereinafter
Slovakia-Kenya BIT].
874
For example, the Germany-Mexico BIT provides:
EAST\64724221. 3314
exception;875 (iii) security exceptions premised on the GATT Article
XXI;876 (iv) security exceptions that include public order language;877 and
The dispute settlement provisions of this Section shall not apply to the
resolutions adopted by a Contracting State, which for National Security
reasons, prohibit or restrict the acquisition of an investment in its
territory, owned or controlled by its nationals, by nationals or
companies of the other Contracting State, according to the legislation of
the relevant Contracting State.
Germany-Mexico BIT, supra note 845, art. 20.
875
The New Zealand-China BIT provides:
The provisions of this Agreement shall not in any way limit the right of
either Contracting Party to apply prohibitions or restrictions of any kind
or take any other action direct to the protection of its essential security
interests, or to the protection of public health, or to the prevention of
disease and pests in animals or plants.
New Zealand-China BIT, supra note 861, art. 11. A second form of this variant is
exemplified by the Austria-India BIT:
Nothing in this Agreement precludes the host Contracting Party from
taking necessary action in abnormal circumstances for the protection of
its essential security interests or in circumstances of extreme
emergency in accordance with its laws applied on a non-discriminatory
basis.
Agreement Between the Government of the Republic of Austria and the Government of
the Republic of India for the Promotion and Protection of Investments art. 12 ¶ 2, Ind.Aust., Dec. 18, 2000, http://www.unctad.org/sections/dite/iia/docs/bits/austria_india.pdf
[hereinafter Austria-India BIT].
876
The Canada-China BIT, for example, provides:
Nothing in this Agreement shall be construed:
(a) to require a Contracting Party to furnish or allow access to
information if the Contracting Party determines that the disclosure of
that information is contrary to its essential security interests;
(b) to prevent a Contracting Party from taking any actions that it
considers necessary for the protection of its essential security interests:
(i)
relating to the traffic in arms, ammunition and implements
of war and to such traffic and transactions in other goods,
materials, services, and technology undertaken directly or
indirectly for the purpose of supplying a military or other security
establishment;
(ii)
or,
in time of war or other emergency, in international relations;
EAST\64724221. 3315
(v) a qualification that national security interests are self-judging.878 The
security exceptions expression of the public purpose doctrine theoretically
harbors the same fundamental concerns identified as pervading an
orthodox understanding of the doctrine. In practice, however, with few
notable exceptions such as the use of public order as a premise for
adversely compromising a standard of investment protection and
commercial transactions alleged to be indirectly for the purpose of
supplying a military or other security establishment, non-economic
security exceptions are readily discernible and historically have proven to
be statistically inconsequential in treaty-based international arbitrations.879
(iii) relating to the implementation of national policies or other
nuclear explosive devices; or
(c) to prevent a Contracting Party from taking action in pursuance of
its obligations under the United Nations Charter for the maintenance of
international peace and security.
Canada-China BIT, supra note 546, art. 33 ¶ 5. Notably, with the exception of Article
35(5)(b)(iii), the remaining five subsections comprising the totality of Art. 33(5) is based,
in most instances verbatim, on the Article XXI (“Security Exceptions”) of the GATT.
877
The Belgium-Colombia BIT provides, in relevant part:
Nothing contained in this Agreement shall bind either Contracting
Party to protect investments made with capital or assets derived from
illegal activities, and it shall not be construed so as to prevent a Party
from adopting or maintaining measures intended to preserve public
order, the fulfillment of its duties for the keeping or restoration of
international peace and security; or the protection of its own essential
security interests.
Belgium-Colombia BIT, supra note 797, art. II ¶ 3 (emphasis supplied). Similarly, the
Hungary-Russia BIT States:
This Agreement shall not preclude the application of either Contracting
Party of measures, necessary for the maintenance of defence, national
security and public order, protection of the environment, morality and
public health,
Hungary-Russia BIT, supra note 827, art. II ¶ 3 (emphasis supplied).
878
See, e.g., Treaty Between the Government of the United States of America and the
Government of the Republic of Nicaragua Concerning the Encouragement and
Reciprocal Protection of Investment Protocol ¶ 1, USA-Nic., Jul. 1, 1995,
http://www.unctad.org/sections/dite/iia/docs/bits/us_nicaragua.pdf [hereinafter USANicaragua BIT] (“With respect to Art. XIV, paragraph 1, the parties confirm their mutual
understanding that whether a measure is undertaken by a party to protect its national
security interests is self-judging.”).
879
However,, such issues have still drawn substantial attention from both domestic and
multinational legislative bodies. See generally James K. Jackson, Foreign Investment and
National Security: Economic Considerations, Congressional Research Service Report for
EAST\64724221. 3316
Public purpose in the context of security exceptions have no pretense but
to be self-judging, i.e., far-removed from objective criteria.880
The Colombia-Japan BIT is premised on the GATT Article XXI
model. As previously noted, this BIT organizationally treats security
exceptions together with general exceptions in Article 15. Article 15 is
substantially similar to Article XX881 and Article XXI882 of the GATT but
for a notice provision that, significantly, is triggered after the undertaking
of a measure inconsistent with Paragraph 1 of Article 15:
3.
In cases where a Contracting Party takes any
measure, pursuant to paragraph 1, that does
not conform with the obligations under this
Agreement other than Article 12, that
Contracting Party shall endeavor to, as soon
as possible, notify the measure to the other
Contracting Party.883
The Article 15(3) notification provision significantly only applies to the
regulatory sovereignty premised on the GATT’s Article XX exceptions
and not to the security exceptions expression of the public purpose
doctrine. Both the general exceptions and security exceptions, however,
appear to be self-judging. The fundamental inference to be drawn from the
plain language of Article 15 forecloses consideration of pre-measure
notice or consultation.
While the unique character of non-economic security interests
conceptually and practically lends considerable support to an expansive
content that is self-judging and wanting in proportionality of application, it
remains critical to note that the fundamental principle underlying
normative claims to unilateral and non-proportional regulatory sovereignty
is based on a public purpose, albeit one that theoretically may entail the
preservation of actual sovereignty.
Congress, Apr. 4, 2013, available at http://www.fas.org/sgp/crs/natset/RL34561.pdf (last
visited July 8, 2013).
880
See, e.g., USA-Rwanda BIT, supra note 827, art. 18 ¶ 1 (“Nothing in this Treaty shall
be construed…to preclude a Party from applying measures that it considers necessary
for…protection of its own essential security interests.”) (emphasis supplied)
881
Compare Colombia-Japan BIT, supra note 546, art. 15 ¶ 1 with GATT, supra note 19,
art. XX.
882
Compare Colombia-Japan BIT, supra note 546, art. 15 ¶ 2 with GATT, supra note 19,
art. XXI.
883
Colombia-Japan BIT, supra note 546, art. 15 ¶ 3.
EAST\64724221. 3317
Exceptions for transfers comprise the sixth category of public
purpose exceptions contained in the Sample BITs.884 The exceptions for
transfers consist of two categories: (i) restrictions on transfers permitted
for specific application of national laws885 and (ii) exceptions for balanceof-payment difficulties.886 These two categories of exceptions for transfers
in turn have their own quite discernible variations.
Restrictions on transfers based upon specific application of
national laws is subject-matter based and subject to (i) equitable, (ii) nondiscriminatory, and (iii) good faith application of law.887. Restrictions on
884
See, e.g., Canada-Armenia BIT, supra note 795, art. IX ¶¶ 3, 5; Canada-Barbados
BIT, supra note 827, art. IX ¶¶ 3, 5; Agreement Between the Government of the People’s
Republic of China and the Government of the State of Kuwait for the Promotion and
Protection of Investments art. 6 ¶ 4, Chi.-Kuw., Nov. 23, 1985,
http://www.unctad.org/sections/dite/iia/docs/bits/china_kuwait.pdf [hereinafter ChinaKuwait BIT]; Colombia-India BIT, supra note 798, art. 5 ¶¶ 3-4; Agreement Between
the Government of the Republic of France and the Government of the United Mexican
States on the Reciprocal Promotion and Protection of Investments art. 7, Fra.-Mex., Nov.
12,
1998,
http://www.unctad.org/sections/dite/iia/docs/bits/mexico_france.pdf
[hereinafter France-Mexico BIT]; Agreement Between Japan and the Democratic
Socialist Republic of Sri Lanka Concerning the Promotion and Protection of Investment
art.
8
¶
2,
Jap.-Sri.,
Mar.
1,
1982,
http://www.unctad.org/sections/dite/iia/docs/bits/srilanka_japan.pdf [hereinafter JapanSri Lanka BIT].
885
See, e.g., Agreement Between the Government of Canada and the Government of
Ukraine for the Promotion and Protection of Investments art. IX (“Transfer of Funds”),
Can.-Ukr.,
Oct.
24,
1994,
Error!
Hyperlink
reference
not
valid.http://www.unctad.org/sections/dite/iia/docs/bits/canada_ukraine.pdf [hereinafter
Canada-Ukraine BIT].
886
See, e.g., Agreement Between the Kingdom of Spain and the Republic of Venezuela
for the Promotion and Protection of Investments art. VII ¶ 4, Spa.-Ven., Nov. 2, 1995,
http://www.unctad.org/sections/dite/iia/docs/bits/spain_venezuela_sp.pdf
[hereinafter
Spain-Venezuela BIT],
887
The Canada-Armenia BIT, for example, provides:
Notwithstanding paragraphs 1 and 2, a Contracting Party may prevent a
transfer through the equitable, non-discriminatory and good faith
application of its laws relating to:
(a)
bankruptcy, insolvency or the protection of rights of
predators;
(b)
issuing, trading or dealing in securities;
(c)
criminal or penal offenses;
(d)
reports of transfers of currency or other monetary
instruments;
(e)
ensuring the satisfaction of judgments in adjudicatory
proceedings.
Canada-Armenia BIT, supra note 795, art. IX ¶¶ 3(emphasis supplied). A broader scope
for restrictions on transfers based on the safety, soundness, integrity or financial
EAST\64724221. 3318
transfers permitted for specific application of national laws do not reflect
any mandatory principle qualifying such restrictions for a specific time
frame; in fact, the exercise of regulatory sovereignty pursuant to issuance
of a measure restricting transfers that comports with national law is not
required to lift or modify the transfers restrictions at the earliest possible
time. Likewise, such restrictions do not require “serious” or “exceptional”
need.
Restrictions on transfers may issue in the form of regulatory
sovereignty where a contracting party experiences “serious balance of
payment difficulties, or the threat thereof.”888 In addition to the
“seriousness” requirement imposed by the Canada-Slovakia BIT variant,
such measures must comport with seven material qualifications. The
measure(s): (i) must be equitable; (ii) cannot be arbitrary; (iii) cannot be
“unjustifiably discriminatory”; (iv) must meet a “good faith” requirement;
(v) must be of limited duration; and (vi) must be a specially tailored
remedy for the particular balance of payments problem at issue.889
The exception for balance of payment difficulties clause contained
in the Colombia-India BIT at Article 5(4) is indicative of a more
streamlined approach premised on the hierarchy of placing
macroeconomic management concerns over and above the microeconomic
issues endemic to particular cases of foreign investment protection. This
clause provides:
Notwithstanding the provisions of paragraphs 1 and 2 of
this Article, the Contracting Parties may temporarily
restrict the transfers in the event of a serious balance-ofresponsibility of financial institutions—yet, also subject to equitable, non-discriminatory
and good faith application of measures—is further identified in Article. XI(2) of the
Canada-Armenia BIT, notwithstanding the provisions of Article IX(3). Art. XI (2) of the
Canada-Armenia BIT reads:
Notwithstanding paragraphs (1), (2) and (4) of Article IX, and without
limiting the applicability of paragraph (3) of Article IX, a Contracting
Party may prevent or limit transfers by a financial institution to, or for
the benefit of, an affiliate of or person related to such institution or
provider, through the equitable, non-discriminatory and good faith
application of measures relating to maintenance of the safety,
soundness, integrity or financial responsibility of financial institutions.
Id. art. XI ¶ 2 (emphasis supplied).
888
See, e.g., Agreement Between Canada and the Slovak Republic for the Promotion and
Protection of Investment art. IX ¶ 3(a), Can.-Slo., Jul. 20, 2010,
http://www.unctad.org/sections/dite/iia/docs/bits/Canada_slovakia_new.pdf [hereinafter
Canada-Slovakia BIT].
889
Id. art. IX ¶ 3(b).
EAST\64724221. 3319
payments or threat thereof; or in cases where, in
exceptional circumstances, movements of capital cause or
threaten to cause serious difficulties for macroeconomic
management, in particular, monetary and exchange rate
policies, provided such restrictions are compatible or are
issued in conformity with the agreements of the IMF or are
applied upon request of the latter and are equitable, nondiscriminatory and in good faith.890
This iteration of the clause, in addition to introducing macroeconomic
necessity as a justifiable public purpose, also preserves the requirements
that measures be equitable, non-discriminatory, in good faith and in
response to serious balance-of-payments difficulties contained in the
Canada-Slovakia BIT891
The temporal qualifications such as “limited duration” and “a time
schedule for [the] removal” of the measures restricting funding identified
in the Canada-Slovakia BIT are altogether omitted from the ColombiaIndia BIT, including the stricture commanding that the measure be
narrowly tailored to the problem that it seeks to address.892
The least qualified and, therefore, broadest expression of the
exceptions for transfers iteration of the public purpose doctrine is
exemplified by the Japan-Pakistan BIT. In that instrument, the single
limiting qualification to the doctrine is the adjective “exceptional”
modifying “financial or economic circumstances.”893
890
Colombia-India BIT, supra note 798, art. 5 ¶ 4.
891
It is important to note that while the Canada-Slovakia BIT does not reference
“conformity with the agreements of the IMF” as does the Colombia-India BIT, it does
explicitly allude to “accordance” with “the WTO Agreement and the Articles of
Agreement of the International Monetary Fund.” Compare Colombia-India BIT, supra
note 798, art. 5 ¶ 4, with Canada-Slovakia BIT, supra note 890, art. IX¶ 3(b) (emphasis
supplied).
892
Canada-Slovakia BIT, supra note 890, art. IX ¶ 3(b).
893
The Japan-Pakistan BIT provides, in relevant part:
Notwithstanding the provisions of paragraph 1 of the present Article,
either Contracting Party may, in exceptional financial or economic
circumstances, impose such exchange restrictions in accordance with
its laws and regulations and in conformity with the Articles of
Agreement of the International Monetary Fund so long as each
Contracting Party is a party to the said Articles of Agreement.
Agreement Between Japan and the Islamic Republic of Pakistan Concerning the
Promotion and Protection of Investment art. 8 ¶ 2, Jap.-Pak., Mar. 10, 1998,
EAST\64724221. 3320
The Colombia-Japan BIT covers exceptions for transfers under the
banner of “temporary safeguard measures.” It addresses exceptions for
transfers akin to the clause used in the Japan-Pakistan BIT, but unlike that
treaty, the Colombia-Japan BIT does not mention the International
Monetary Fund; instead, it limits its qualification to “serious difficulties
for macroeconomic management.”894
Notwithstanding carefully crafted variations of exceptions for
transfers evinced in the Sample BITs under (i) restrictions on transfers
permitted for specific application of national laws and (ii) exceptions for
balance-of-payment difficulties, this public purpose based exception
intermingles macroeconomic standards pertaining to the WTO Agreement
and the Articles of the International Monetary Fund (IMF) with protection
standards that are best framed in a microeconomic context. The exceptions
also are self-judging and rife with elements that ostensibly appear to be
particular, but in fact are less than uniform nor actually defined within the
ambit of public international law, such as “good faith.”
An orthodox approach would suggest that macroeconomic
standards are universal and, therefore, less susceptible to arbitrariness or
manipulation. In this same vein, macroeconomic exigencies may be said to
embrace objective criteria such that “exceptional financial or economic
circumstances” that affect an entire nation itself points to a problem the
solution of which inherently entails an expansive expression of public
purpose that can be gauged. Absent from the exceptions is any reference
to proportionality or causation beyond “movements of capital [that may]
cause or threaten to cause serious difficulties for macroeconomic
management,”895 such as “actual cause” or “direct and proximate cause.”
http://www.unctad.org/sections/dite/iia/docs/bits/pakistan_japan.pdf [hereinafter JapanPakistan BIT].
894
The Colombia-Japan BIT provides:
1. A Contracting Party may adopt or maintain measures not
conforming with its obligations under paragraph 1 of Article 2 relating
to cross-border capital transactions and Article 14:
(a)
in the event of serious balance-of payments and external
financial difficulties or threat thereof; or
(b)
in cases where, in exceptional circumstances, movements of
capital cause or threaten to cause serious difficulties for
macroeconomic management, in particular, monetary and
exchange rate policies.
Colombia-Japan BIT, supra note 546, art. 16 ¶ 1(a)-(b).
895
Colombia-India BIT, supra note 798, art. 5 ¶ 4.
EAST\64724221. 3321
Instead, vague terms such as “serious difficulties” that point to subjectiveself-judging criteria pervade the exceptions for transfers.
Prudential financial measures constitute the seventh expression of the
public purpose doctrine contained as an exception in the Sample BITs.896
Two variations of the prudential financial measures exceptions clause are
discernible from the Sample BITs. The broadest exemplar is represented
by a brief single sentence clause that vests Host States with virtually
unbridled regulatory sovereignty as to this subject matter. Accordingly,
the scope of the clause is inversely proportionate to its length. The
Belgium-Colombia BIT contains such a clause, which provides:
Nothing contained in this Agreement shall apply to
measures adopted by any Contracting Party, in accordance
with its law, with respect to the financial sector for
prudential reasons, including those measures aimed at
protecting investors, depositors, insurance takers or
trustees, or to safeguard the integrity and stability of the
financial system.897
Notably, the only limitation placed on a Host State exercising regulatory
sovereignty pursuant to this provision is the qualifying language “in
accordance with its law, with respect to the financial sector for prudential
reasons.”898 In fact, even the objectives of the measures taken are not
limited to protecting specific classes of individuals as to the financial
system and the financial system itself, as evinced by the word “including.”
The clause’s ample scope, lacking reference to any “objective” standard,
bespeaks an anatomy favoring a self-judging rubric that enhances hostState regulatory sovereignty.
The Canada-Armenia BIT exemplifies the second variation of
prudential financial measures exceptions contained in BIT clauses. This
type of clause reads:
Nothing in this Agreement shall be construed to prevent a
Contracting Party from adopting or maintaining reasonable
measures for prudential reasons, such as:
896
See, e.g., Belgium-Colombia BIT, supra note 797, art. 2 ¶ 5; Canada-Costa Rica BIT,
supra note 827, annex I.III ¶ 3; Japan-Vietnam BIT, supra note 854, art. 17.
897
Belgium-Colombia BIT, supra note 797, art. 2 ¶ 5.
898
Id.
EAST\64724221. 3322
the protection of investors, depositors, financial market participants,
policy-holders, policy-claimants, or persons to whom a fiduciary duty is
owed by financial institutions;
the maintenance of the safety, soundness, integrity or financial
responsibility of financial institutions; and
ensuring the integrity and stability of a Contracting Party’s financial
system.899
The reference to “reasonable measures”900 represents a compelling call for
objective analysis. Moreover, the term “such as,” in contrast with
“including those measures” (this latter qualification contained in the
Belgium-Colombia BIT) seeks to identify qualifying paradigms rather
than general subject matter inclusion.
The Colombia-Japan BIT, paradigmatic of new generation BITs,
contains a hybrid of the two most notable variations of the prudential
measures public purpose exceptions, but limits the exception’s application
by subordinating it to the BIT’s “obligations”:
Notwithstanding any other provisions of this Agreement, a Contracting
Party shall not be prevented from taking measures relating to financial
services sector for prudential reasons, including measures for the
protection of investors, depositors, policy holders or persons to whom a
fiduciary duty is owed by an enterprise supplying financial services, or
measures to ensure the integrity and stability of its financial system.
In cases where a Contracting Party takes any measure, pursuant to
paragraph 1, that does not conform with the obligations under this
Agreement, that Contracting Party shall not use such measure as a means
of avoiding its obligations under this Agreement.901
The first paragraph of this clause limits measures for the protection of
third parties by referencing “persons to whom a fiduciary duty is owed”902
The second paragraph of the clause speaks of not conforming with the
obligations under this Agreement.”903 Subordinating this ambit of
regulatory sovereignty to the BIT’s imperatives certainly illustrates the
899
Canada-Armenia BIT, supra note 795, art. XI ¶ 1,(emphasis supplied).
900
Id.
901
Colombia-Japan BIT, supra note 546, art. 17 (emphasis supplied).
902
Id. (emphasis supplied).
903
Id.
EAST\64724221. 3323
virtues of using treaty-drafting techniques to rein in what otherwise would
be an unbridled license for the exercise of regulatory sovereignty with
respect to a particular exception. Further, the use of the word “conform”
materially weakens application of the exception because of the term’s
expansive and general character. Alternative limiting language—standard
qualification clauses such as “not in compliance with the laws of the
Contracting Party enforcing the measure” or “in conflict with the
obligations under this Agreement”—provides Host States seeking to
circumvent investor protection obligations with greater flexibility in
construing limits to the exception.
Unlike other iterations of the public purpose doctrine, prudential
measures and their appropriate application are inextricably related to the
State necessity doctrine in ways that can be analyzed based upon
“objective” economic analysis. By way of example, the need to undertake
specific macroeconomic measures to stabilize currency in a
macroeconomic crisis, or to render investors or depositors whole in the
wake of an institutional financial collapse, present tangible scenarios that
command exercise of prudential measures that may adversely affect
orthodox host-State obligations in favor of foreign investors. The
“jurisprudence” arising from investor-state arbitrations concerning
application of this defense and/or prudential measures, provides the
universe of investors in capital-exporting countries with considerable
expectation guidelines in this field.904
Empirical analysis is affirmatively conclusive as to the presence,
scope, and content of the public purpose doctrine in BITs. The fragmented
configuration of BITs generally, together with particulars that are unique
to private and generally non-transparent negotiations between States,
considerably cloud content and, therefore, any aspiration for substantive
uniformity with respect to content. While analysis of the 319 BITs
comprising the “Sample BITs” certainly establishes that multiple iterations
of the public purpose doctrine comprise customary international law, there
is little evidence on how the public purpose exception is to be applied, let
alone of any objective or uniform standard governing application of the
doctrine’s multiple iterations.
904
See generally EDF International S.A v. Argentine Republic, ICSID Case No.
ARB/03/23,
Award
(June
11,
2012)
available
at
http://www.italaw.com/sites/default/files/case-documents/ita1069.pdf; Sempra Energy
International v. Argentine Republic, ICSID Case No. ARB/02/16, Decision on the
Argentine Republic’s Application for Annulment of the Award (Jun. 29, 2010), available
at http://www.italaw.com/sites/default/files/case-documents/ita0776.pdf;
Continental
Casualty Company v. Argentine Republic, ICSID Case No. ARB/03/9, Award (Sept. 5,
2008), available at http://www.italaw.com/sites/default/files/case-documents/ita0228.pdf.
EAST\64724221. 3324
Based upon analysis of the Sample BITs, the doctrine remains selfjudging in application by host-States. Additionally, with few exceptions,
the public purpose doctrine as embodied in the Sample BITs generally
remains expansive and, therefore, favoring Host States over Home States.
This asymmetry contributes to uncertainty and is eroding investor
expectations as to process legitimacy. Put simply, the fragmented structure
of the approximately 3,000 BITs constituting this decentralized network of
treaties fosters asymmetrical treatment and not bilateralism in the
relationship between investor and host-State. This problem is further
exacerbated with respect to expressions of the public purpose doctrine
such as “sustainable development,” which themselves are the byproduct of
multiple interpretations depending on the historically contingent
development of the doctrine in different regions of the globe.905 The
discernible appearance of the public purpose doctrine in a rather limited
set of subject matter categories and an equally restricted number of
variations of clauses, does render an aspiration or uniformity as to scope,
content, and application realistic. Also, the patent lack of symmetry made
worse by the wholesale importation of macroeconomic principles from
Article XX of the GATT, contribute to expanding disproportionately the
fear of Host State regulatory sovereignty. Second-generation BITs, such as
the emblematic Colombia-Japan BIT, demonstrate a meaningful paradigm
shift that favors underdeveloped and economies in transition. These newer
BITs suggest that in an environment of economic globalization,
traditionally weaker capital-importing States now have greater negotiating
leverage in crafting BITs. The byproduct of this development, however,
has contributed to causing the proverbial pendulum to swing in an extreme
direction, fueling regulatory sovereignty.906
905
In the case of sustainable development in particular, we have seen how the treatment
of the doctrine differs because of the manner in which decolonization occurred in
different regions of the world. No single definition of the principle is anywhere
articulated or adopted. In the context of BITs, sustainable development is mentioned but
never defined. See discussion supra Chapter 2, Subsection E.
906
The new generation BITs do not altogether disavow the interests of Home States. A
number of the BITs that Canada has executed, for example, contain clarification of
indirect expropriation clauses that further Home State interests. The Canada-China BIT is
illustrative:
The Contracting Parties confirm their shared understanding that:
1.
Indirect expropriation results from a measure or series of
measures of a Contracting Party that has an effect equivalent
to direct expropriation without formal transfer of title or
outright seizure.
2.
The determination of whether a measure or series of measures
of a Contracting Party constitutes an indirect expropriation
EAST\64724221. 3325
requires a case-by-case, fact-based inquiry that considers,
among other factors:
a)
the economic impact of the measure or series of
measures, although the sole fact that a measure or
series of measures of a Contracting Party has an
adverse effect on the economic value of an
investment does not establish that an indirect
expropriation has occurred;
b) the extent to which the measure or series of measures
interferes with distinct, reasonable, investmentbacked expectations; and
c) the character of the measure or series of measures.
3.
Except in rare circumstances, such as if a measure or series of
measures is so severe in light of its purpose that it cannot be
reasonably viewed as having been adopted and applied in
good faith, a non-discriminatory measure or series of measures
of a Contracting Party that is designed and applied to protect
the legitimate public objectives for the well-being of citizens,
such as health, safety and the environment, does not constitute
indirect expropriation.
Canada-China BIT, supra note 546, annex. B.10 (“Expropriation”). Many such clauses
also contain the inclusion of government intent as a factor to be considered. See, .e.g,
Canada-Slovakia BIT, supra note 890, annex A ¶ (b)(iii) (“…the character of the
measure or series of measures, including their purpose and rationale…”); ColombiaIndia BIT, supra note 798, art. 6 ¶ 2(iv) (“…the character and intent of the measures or
series of measures, whether they are for bona fide public interest purposes or not and
whether there is a reasonable nexus between them and the intention to expropriate.”).
EAST\64724221. 3326
CHAP
PTER 5
Perm
manent Soverreignty Oveer Natural R
Resources
EAST\64
4724221.3
327
Perhaps the most emblematic expression of the public purpose
doctrine that manifests a commitment to bolstering regulatory sovereignty
is found in the doctrine of Permanent Sovereignty over Natural Resources.
Much like fundamental principles of Sustainable Development and SelfDetermination, the principle of Permanent Sovereignty over Natural
Resources (“PSNR”) has its genesis in the process of decolonization.907
The historical phenomenon of decolonization witnessed a stark shift in
domestic and international economic policy that prioritized the
development and “repatriation” of natural and economic resources
pertaining to former colonies.908 Along the same vein as the sustainable
development expression of the public purpose doctrine, the principle of
PSNR is premised on the proposition that colonization gave rise to
policies that disadvantaged colonial States in favor of the colonizing
sovereignties.909 PSNR, much like the principle of sustainable
development,910 varies both doctrinally and conceptually depending on its
regional historic origins.
By way of example, Schrijver observes this phenomenon, but
expresses it in terms of the doctrinal ambiguity present when identifying a
homogeneous treaty-based objective:
Treaties which implicitly or explicitly formulate the right of
permanent sovereignty hardly ever spell out its objectives.
The Human Rights Covenants of 1966 provide that:
‘Peoples may for their own ends dispose of their natural
wealth and resources and that they should enjoy and utilize
907
Lillian Aponte Miranda, The Role of International Law in IntraState Natural Resource
Allocation: Sovereignty, Human Rights, and Peoples-Based Development, 45
VANDERBILT J. TRANSNAT’L L. 785, 789 (2010) (“In the last century alone, international
law has played a significant role in global debates regarding ownership, use, control, and
development of land and natural resources. More specifically, in the period of colonial
dissolution, the international doctrine of permanent sovereignty over natural resources
was developed and applied to interState disputes between colonizing States and newly
independent colonies.”)
908
See id. at 789-90.
909
Id. at 790 (noting that the “doctrine emerged with the aim of protecting newly
independent States from economic recolonization resulting from the appropriation of
their natural resource base by foreign actors.”).
910
As noted, while there exists a general understanding of sustainable development with
essential elements that are shared by the community of nations, the doctrine’s expression
in considerable measure is related to its historicity. Thus, for example, the doctrine’s
expression in the European Convention on Human Rights is materially different from the
scope and subject matter of the doctrine as expressed in the Inter-American Convention
on Human Rights. Moreover, the iteration of the doctrine in both of these conventions is
materially distinct from the doctrine as found in the African Charter on Human and
Peoples’ Rights. See discussion supra Chapter 3.
EAST\64724221.3
328
these fully and freely.’ The African Charter on Human and
Peoples’ Rights’ of 1981 is slightly less general: ‘This right
shall be exercised in the exclusive interest of the people.’ It
is further provided that States shall exercise this right ‘with
a view to strengthening African unity and solidarity.’911
A review of international instruments distinctly identifies PSNR as
a principle of customary and conventional international law.912 Its content
and scope, however, remain less clear. Both appear to be grounded on two
propositions: (i) a construction of history that finds it necessary to redress
resource and economic inequities arising from the colonizer/colony
relationship; and (ii) a narrow and “self-evident” approach to public
purpose that provides a normative foundation for the self-determination of
natural resources by States with little qualification regarding broader
obligations attendant to the right of PSNR that a State may have with
respect to the community of nations.913 Both of these premises command
review of the foundation of international instruments giving rise to PSNR.
911
NICO SCHRIJVER, SOVEREIGNTY OVER NATURAL
AND DUTIES 21 (Cambridge University Press 2008).
RESOURCES: BALANCING RIGHTS
912
See, e.g., Integrated Economic Development and Commercial Agreements, G.A. Res.
523, U.N. GAOR, 6th Sess., Supp. No. 20, at 20, U.N. Doc. A/2119 (1952) [hereinafter
G.A. Res. 523]; Right to Exploit Freely Natural Wealth and Resources, G.A. Res. 626,
U.N. GAOR, 7th Sess., Supp. No. 20, at 18, U.N. Doc. A/2361 (1952) [hereinafter G.A.
Res. 626]; Permanent Sovereignty Over Natural Resources, G.A. Res. 1803, U.N.
GAOR, 17th Sess., Supp. No. 17, at 15, U.N. Doc. A/5217 (1962) [hereinafter G.A. Res.
1803]; Permanent Sovereignty Over Natural Resources, G.A. Res. 2158, UN GAOR, 21st
Sess., Supp. No. 16, at 29, U.N. Doc. A/6518 (1966) [hereinafter G.A. Res. 2158];
Permanent Sovereignty Over Natural Resources of Developing Countries, G.A. Res.
3016, UN GAOR, 27th Sess., Supp. No. 30, at 48, U.N. Doc. A/8963 (1972) [hereinafter
G.A. Res. 3016]; Permanent Sovereignty Over Natural Resources, G.A. Res. 3171, U.N.
GAOR, 28th Sess., Supp. No. 30, at 52, U.N. Doc. A/9030 (1973) [hereinafter G.A. Res.
3171].
913
Schrijver compellingly argues that
The challenge of the next two or three decades will be how to balance
permanent sovereignty over natural resources with other basic
principles and emerging norms of international law─including the duty
to observe international agreements, grant fair treatment to foreign
investors, pursue sustainable development at national and international
levels and to respect human and peoples’ rights─and in this way to
serve best the interests of present and future generations.
SCHRIJVER, supra note 913, at 380.
EAST\64724221. 3329
A.
PSNR: The Structural Foundations of a Doctrine
1.
General Assembly Res. 523 and 626
The pre-economic globalization United Nations resolutions giving rise to
the principle of PSNR contain the seeds for what eventually would
become conflicting paradigms of sovereignty. This fundamental
dissonance—between
traditional
Westphalian
conceptions
of
sovereignty914 and a contemporary understanding viewed through the lens
of transnational interdependence and shared Global responsibilities915—
can be gleaned by the not-too-delicate balance that the foundational
resolutions sought to accomplish in harmonizing the interests between
developed (Home States) and developing nations (Host States). The
remedial nature of these resolutions emphasize a policy favoring
underdeveloped States that would vest Host States with virtually
unchecked regulatory sovereignty in the interest of an overtly nationalistic
public purpose.
General Assembly Resolution 523, entitled “Integrated Economic
Development and Commercial Agreements,” for the first time asserts that
as a matter of “right”—in
conjunction with principles of selfdetermination—”under-developed countries” are empowered to use their
“natural resources” in the interests of economic national development.916
This foundational resolution on the principle of PSNR does not define any
of its essential terms, but in fact affirmatively advances a stark contrast
between developed and underdeveloped States, and in so doing articulates
the resolution’s remedial nature.
The resolution not too indirectly suggests that the use and
stockpiling of raw materials on the part of developed States has caused or
increased “the economic difficulties in many of the under-developed
914
See supra note 51 & accompanying text.
915
See discussion supra Chapter 4, Section B .
916
General Assembly Resolution 523, provides in pertinent part:
The General Assembly,
Considering that the under-developed countries have the right to
determine freely the use of their natural resources in that they must
utilize such resources in order to be in a better position to further the
realization of their plans of economic development in accordance with
their national interests, and to further the expansion of the world
economy[.]
G.A. Res. 523, supra note 914 .
EAST\64724221. 3330
countries.”917 Even though the resolution does not address a remedial
purpose incident to historical advantages that industrialized countries
secured from underdeveloped States, it does express a causal relationship
in the present originating in industrialized countries, and having an effect
on underdeveloped States. By so doing, the resolution expressed its
conceptual commitment primarily to (i) orthodox Westphalian notions of
sovereignty and (ii) the development of underdeveloped countries.
The principles of (i) self-determination, (ii) sustainable
development, and (iii) permanent sovereignty over natural resources (the
last two understandably in very embryonic form) are explicitly referred to
in the resolution interdependently, each providing analytical support for
the other. The resolution in relevant part reads:
Bearing in mind that one way of obtaining the means
necessary for carrying out economic development plans in
underdeveloped countries is the creation of conditions
under which these countries could more readily acquire
machinery, equipment and industrial raw materials for the
goods and services exported by them,
1.
Recommends that members of the United Nations
within the framework of their general economic policy,
should:
(a). Continue to make every possible effort
to carry out the recommendations contained
in paragraphs, 1, 2, 3, and 4 of Economic
and Social Council Resolution 341 (XII),
Section A of 20 March, 1951;
917
General Assembly Resolution 523 does not explicitly identify developed or
industrialized States as culprits in relation to the economic challenges that
underdeveloped States face. The text of this section of the resolution, however, leaves
little doubt that only by imputing these economic challenges to developed countries can
the provision be reasonably construed. The pertinent language reads:
Considering, that the existing sharp increase in the demand for raw
materials, including the demand for stock-piling has resulted in an
increase in the prices of a number of raw materials and in fluctuations
in the price of others; has in many cases been accompanied by
increased prices and reduced availability of important items of
machinery, equipment, consumer goods and industrial raw materials
necessary for the development of under-developed countries; has
created inflationary pressures and brought about the regulation of
prices at different relative levels for different products and has thereby
caused or increased the economic difficulties in many of the underdeveloped countries[.]
Id.
EAST\64724221. 3331
(b). Consider the possibility of facilitating
through commercial agreements:
…
(ii) The development of natural
resources which can be utilized for
the domestic needs of the
underdeveloped countries and also
for the needs of international trade,
provided that such commercial agreements
shall not contain economic or political
conditions violating the sovereign rights of
the under-developed countries, including the
right to determine their own plans for
economic development.918
The emphasis placed on national economic development pursuant to an
ostensibly unbridled right on the part of underdeveloped countries919 is
inimical to post-economic globalization paradigms based on
interdependence and broad exceptions to the exercise of regulatory
sovereignty largely based upon the more Global concerns of the
community of nations.
Resolution 523 is not altogether silent on the right of
underdeveloped countries “to determine freely the use of their natural
resources.”920 In three notable passages, Resolution 523 indeed references
underlying policies that concern the community of nations and not just
what would be in the national interests of particular States. The very first
paragraph alludes to the connection between the right to determine freely
the use of their natural resources by underdeveloped countries and the
equally important task of seeking “to further the expansion of the world
economy.”921 Second, the resolution recognizes the necessity of
918
Id. (emphasis supplied).
919
The Resolution is silent as to all countries or industrialized countries having this
unfettered “right to determine freely the use of their natural resources.” Id. Analytically,
within the framework of the resolution, the right logically would extend to all States
because it is premised on the universal principle of self-determination. Because the
resolution only mentions underdeveloped countries, the exclusion of industrialized and
even of underdeveloped States is best construed as a point of emphasis and purpose only.
920
Id. at ¶ 1.
921
Id. It is noteworthy that the objective of expanding the world economy is treated in
pari materia with the economic development of the national interests of underdeveloped
States.
EAST\64724221. 3332
“[c]ontinu[ing] to make every possible effort to carry out the
recommendations contained in Paragraphs 1, 2, 3 and 4 of Economic and
Social Council resolution 341 (XII), Section A, of 20 March 1951.”922 But
for a single reference to the purchasing power of the “poorer sections of
the population,”923 the resolution mostly aims to address macroeconomic
measures at an international level that purport to benefit all members of
the international community. Accordingly, the measures do not seek to
redress past wrongs or to correct specific problems only confronting
developed States as a result of economic and political measures that may
be ascribed to developed or industrialized countries. Finally, Resolution
523 speaks to “the needs of international trade.” Properly contextualized
this provision of the resolution concerns the use of commercial agreements
to assist underdeveloped nations in developing their natural resources in
order to meet their domestic needs. This proposition is then extended with
a conjunctive to include “the needs of international trade.”924
922
As noted in Resolution 523, paragraphs 1, 2, 3 and 4 of Economic and Social Council
resolution 341 (XII), Section A, set forth:
1.
2.
3.
4.
Recommends that all Members of the United Nations during the
period of general shortage of goods, take special measures to bring
about adequate production and equitable international distribution
of capital goods, essential consumers’ goods and raw materials
especially needed for the maintenance of international peace and
security, the preservation of standards of living and the furthering
of economic development;
Recommends that all members of the United Nations during the
period of general inflationary pressure, take measures, direct or
indirect, to regulate at equitable levels and relationships, the prices
of essential goods moving in international trade, including capital
goods, essential consumers’ goods and raw materials;
Recommends that the equitable regulation of distribution prices
referred to in recommendations 1 and 2 above be maintained as
long as strong inflationary pressures persist, in order to minimize
changes in the purchasing power, in terms of imports, of current
earnings from exports as well as of monetary assets;
Recommends further that all Members of the United Nations take
all steps in their power to prevent the development of inflationary
pressures, thereby preventing speculative profits and maintaining
the purchasing power of the poorer sections of the population.
Id. at n.1.
923
See id.
924
Subsection 1(b)(ii) provides:
The development of natural resources which can be utilized for the
domestic needs of the underdeveloped countries and also for the needs
of international trade.
Id. (emphasis supplied).
EAST\64724221. 3333
Notwithstanding these three surface references to issues that touch
and concern all members of the international community, Resolution 523
is fundamentally a resolution premised on specific needs for particular
nations; such needs in turn are unique to each nation and the set of
underdeveloped countries. Those very particular needs, i.e., the economic
wants of specific countries that are underdeveloped, are territorially based.
Moreover, the resolution’s emphasis on the freedom accorded to each
country to utilize their natural resources freely suggests a subjective (selfjudging) standard based upon each country’s understanding of the manner
and the resource to be developed, as well as the domestic economic wants
to be addressed. This subjective self-judging criteria comports with the
precept of self-determination that pervades the resolution and the principle
of PSNR. It also embodies an analytical methodology that constitutes the
orthodox application, scope, and substantive content of the public purpose
doctrine. The reliance on a subjective standard, together with the use of
critical terms such as “natural resources,” “rights,” “underdeveloped
countries,” and “national interests,” bereft of any proportionality, cannot
help but bring to mind the self-judging, content-free, non-proportional,
and territorially based public purpose doctrine. The resolution’s reliance
on conventional sovereignty and its pre-dating of economic globalization
by half a century, without more, helps explain the normative foundations
of the orthodox public purpose doctrine more generally, and also identifies
the very seeds of change that were embedded in the principle of permanent
sovereignty over natural resources since its very inception in this
embryonic pronouncement.
Issued on December 21, 1952, scarcely twelve months after
Resolution 523, General Assembly Resolution 626 entitled “Right to
exploit freely natural wealth and resources” further bolstered the
legitimacy of PSNR. Consonant with Resolution 523, Resolution 626
emphasizes the existence of a right of States to use and exploit freely their
natural resources.925 Unlike its predecessor, however, Resolution 626
stresses that in addition to aiding underdeveloped nations with their
“progress” and “economic development,” the right to exploit freely natural
wealth and resources is conducive to “universal peace.”926 Secondly,
925
As noted in the third paragraph of Resolution 626:
Remembering that the right of peoples freely to use and exploit their
natural wealth and resources is inherent in their sovereignty and is in
accordance with the Purposes and Principles of the Charter of the
United Nations.
G.A. Res. 626, supra note 914, at ¶ 3.
926
Two provisions in Resolution 626 bridge the right to exploit freely natural resources to
peace. The first is found in the second paragraph of the resolution:
EAST\64724221. 3334
Resolution 626 also distinguishes itself from Resolution 523 by
proscribing “direct or indirect” acts aimed at interfering with “the
sovereignty of any State over its natural resources.”927 Read together,
General Assembly Resolutions 523 and 626 assert four continuing goals
ostensibly under the banner of furthering the interests of the international
community: (i) fueling the expansion of the world economy;928, (ii)
regulating international production and equitable distribution of capital
goods needed for the maintenance of peace and security;929 (iii) curtailing
international inflation;930 and (iv) meeting the needs of international
trade.931
Within the rubric of Resolutions 523 and 626 these four Global
objectives are best pursued by ensuring that States freely utilize their
natural resources in order to meet particular economic needs. The
regulations’ argument for a State’s right to develop its own natural
resources freely are premised on the right of self-determination and
perceived national interests. Therefore, both resolutions establish a direct
relationship between enhanced regulatory sovereignty premised on a
territorial conception of sovereignty, and the desire to increase
international trade, expand the Global economy, and maintain world
Bearing in mind the need for encouraging the underdeveloped countries
in the proper use and exploitation of their natural wealth and resources,
Considering that the economic development of the under-developed
countries is one of the fundamental requisites for the strengthening of
universal peace.
Id. (underlined emphasis supplied).Less explicitly, paragraph 1 of the resolution also
draws attention to the relationship between the right to exploit freely natural resources
and peace in the form of “security, mutual confidence and economic cooperation among
nations.” That paragraph reads:
Recommends all Member States, and the exercise of their right freely to
use and exploit their natural wealth and resources wherever deemed
desirable by them for their own progress and economic development, to
have due regard, consistently with their sovereignty, to the need for
maintaining the flow of capital in conditions of security, mutual
confidence and economic cooperation among nations.
Id. (underlined emphasis supplied).
927
Id. at ¶ 2.
928
G.A. Res. 523, supra note 814, at ¶ 1.
929
Id. at ¶ 1(a).
930
Id.
931
Id. at ¶ 1(b)(ii).
EAST\64724221. 3335
peace. The term “national interests” within the context of these two
foundational PSNR General Assembly resolutions represents the public
purpose normative foundation of the PSNR principle. Pursuant to this
conceptual construction of public purpose, regulatory sovereignty in
furtherance of the ostensible public purpose of freely utilizing natural
resources would trump suspending the “free exercise of this right” based
upon overriding transnational concerns. To the contrary, the workings of
the resolutions dictate that the unassailable and uncompromising
principles of self-determination and national interests underlying “the right
to determine freely the use of natural resources” by individual States are
not at all juxtaposed to the Global concerns of international trade,
expansion of the Global economy, or peace. According to the doctrinal
configuration of the resolutions, absolute regulatory sovereignty in
furtherance of the “free” use of natural resources serves as a requisite
predicate to shared international economic concerns and development.
The conceptual and doctrinal origins of the PSNR expression of
the public purpose doctrine rest on a paradigm on independence and an
orthodox understanding of sovereignty that pre-dates economic
globalization. This pre-economic globalization Westphalian construct of
sovereignty holds that public purpose based upon precepts of selfdetermination and natural interests is both absolute and best understood
pursuant to a State’s own self-judging criteria. It disallows any conceptual
space that would invite an exception to regulatory sovereignty arising
from transnational needs, such as investment protection obligations
running from a host to home932
B.
The Development of the Nomenclature Permanent Sovereignty
over Natural Resources and the Creation of a Commission
Neither Resolution 523 nor Resolution 626 actually mentions the
term “permanent sovereignty over natural resources.” While both of these
provisions do express a right to the development of natural resources that
is based on the twin principles of self-determination and public purpose,933
It is important to place these resolutions in their appropriate historical context. In 1951,
the year in which GA Resolutions 341 (XII) and 523 (VI) issued, international human
rights law, by way of example, commanding that orthodox territorial sovereignty must be
subordinated to transnational norms that seek the protection of persons irrespective of
citizen status, also was in an embryonic development phase. Thus, exceptions to
regulatory sovereignty based upon non-domestic or non-national issues, found little
precedent. In fact, the Universal Declaration of Human Rights, widely considered the
first step in the international human rights movement, was not adopted until December
10, 1945. See UDHR, supra note 648.
933
Resolution 523 expresses public purpose in terms of “national interests.” G.A. Res.
523, supra note 914. Resolution 626 expresses the public purpose doctrine as
“consistently with their sovereignty,” in referring to the basis for the use and exploitation
of natural resources. G.A. Res. 626, supra note 914.
EAST\64724221. 3336
the concept of a permanent sovereignty over natural wealth is far from
being fully developed, let alone reduced to its now familiar nomenclature
of “permanent sovereignty over natural resources.” The public purpose
component of both resolutions, however, cannot at all be conceptually
severed from pre-economic globalization notions of territorial sovereignty
and regulatory paradigms based upon economic models of independence.
It would not be too much of a conceptual leap to conclude that the process
of decolonization that spawned a need to issue United Nations
resolutions—resolutions that identified a virtually unqualified right of
States to develop their natural resources and wealth in furtherance of
national interests and pursuant to the principle of self-determination—also
materially influenced the development of a public purpose doctrine in
public international law that is self-judging by the invoking State, does not
provide for proportionality, and is treated as intuitively self-evident, much
like the precept of self-determination.
The right to determine freely a State’s use of its natural resources
as set forth in Resolutions 523 and 626 first received its current
nomenclature of permanent sovereignty over natural resources in the two
draft covenants on human rights that the United Nations Commission on
Human Rights published during its tenth session (February 23-April 16,
1954).934 It is in Part 1, Article 1 of the Draft International Covenants on
Human Rights that the doctrine of permanent sovereignty over natural
wealth and resources is first found. The historical context in which it
surfaces, at the apogee of the Cold War when nationalistic fervor and
decolonization also were at a pinnacle, is important. Also central to
understanding the normative anatomy of this expression of public purpose
and more generally of the development of the orthodox conception of the
public purpose doctrine as defined in this writing, is the textual context in
which PSNR is mentioned.
PSNR as to nomenclature and substantively as a right appears early
in the draft covenants. In Part 1, Article 1, Paragraph 3, the two-paragraph
step preceding, however, are helpful to the understanding of PSNR’s
scope and content as originally conceived:
All peoples and all nations shall have the right of selfdetermination, mainly, the right freely to determine their
political economic, social and cultural status.
All States, including those having responsibility for the
administration of Non-Self-Governing and Trust Territories
934
, Official Records of the Economic and Social Council, Eighteenth Session,
Supplement No. 7 (E/2573), Annexes I - III (Feb. 23-April 16, 1954) [hereinafter Draft
International Covenant on Human Rights].
EAST\64724221. 3337
and those controlling in whatsoever manner the exercise of
that right by another people, shall promote the realization
of that right in all their territories and shall respect the
maintenance of that right in other States, in conformity with
provisions of the United Nations Charter.935
The principle of self-determination also is underscored as endemic to
regulatory sovereignty in the context of economic development. Thus, the
first historical mention of the principle of PSNR in an international
instrument is preceded by two paragraphs that highlight the importance of
the principle of self-determination and its connection to economic status or
development. This context is suggestive of the proposition that the
exercise of regulatory sovereignty in furtherance of political, economic,
social, and cultural status is but an expression of self-determination that
need only consider national interest or public purpose within an orthodox
territorial framework. It is within this conceptual structure that PSNR is
explicitly referenced as to nomenclature and hierarchy as an inalienable or
absolute precept of public international law:
3. The right of peoples to self-determination shall also
include permanent sovereignty over their natural
wealth and resources. In no case may a people be
deprived of its own means of subsistence on the
grounds of any rights that may be claimed by other
States.936
This first and historically significant reference to PSNR has two very
distinct consequences that directly have influenced the character and
application of the public purpose doctrine in international law. First,
because PSNR is conceptualized and presented as drawing its normative
foundation from the precept of “self-determination,” the PSNR expression
of the public purpose doctrine is accorded self-evident or intuitive status.
Indeed, the very language of the draft international covenants on human
rights States that PSNR actually forms part of and is subsumed by the
precept of self-determination.937
Therefore, the customary treatment of public purpose as a selfevident principle concerning all things public as understood through the
prism of the State was significantly bolstered by treating the PSNR
expression of the doctrine as included in the principle of self935
936
Id. at Part. 1, Art. 1 ¶¶ 1-2.
Id. at ¶ 3 (emphasis supplied).
937
Id. (stating that “[t]he right of peoples to self-determination shall also include
permanent sovereignty over their natural wealth and resources.”) (emphasis supplied).
EAST\64724221. 3338
determination. The latter is held out to be a paradigmatic example of an
intuitive and self-evident principle that defies the need for conceptual
understanding beyond intuition or doctrinal justification for its application
as part of the exercise of regulatory sovereignty.
Second, the orthodox conceptualization and understanding of the
public purpose doctrine is suggestive of a hierarchical status pursuant to
which actions undertaken in furtherance of a purported public purpose
preempt other legally binding obligations on the part of States. This
normative standing certainly may be explained in part by the weight and
standing historically accorded to “first principles” generally in
philosophical discourses,938 and in public international law in particular.939
938
See generally ARISTOTLE, PRIOR ANALYTICS (Robin Smith, ed., Hackett Pub. Co.
1989); THOMAS AQUINAS, THE SUMMA THEOLOGICA OF ST. THOMAS AQUINAS (Fathers
of the English Dominican Province, ed., Christian Classics 1981).
939
In the realm of public international law, those norms accorded hierarchical status are
referred to as jus cogens. One scholar has attempted to summarize the application and
relevance of jus cogens as follows:
[R]ules of jus cogens can be defined in general terms as being nonderogable rules of international ‘public policy.’ Given their overriding
importance and indeed because often they involve matters of
international public order it can be Stated that each and every State has
a legal interest therein. As a result, one can State that peremptory
obligations are owed all States (and other subjects of international law)
to the international community of States as a whole. One can recall the
well-known dictum of the ICJ in the Barcelona Traction Case:
‘[A]n essential distinction should be drawn between
the obligations of a State towards the international
community as a whole, and those arising vis-à-vis
another State…. By their nature the former are the
concern of all States. In view of the importance of the
rights involved, all States can be held to have a legal
interest in their protection; they are obligations erga
omnes…. Such obligations derive, for example, in
contemporary international law, from the outlawing
of acts of aggression, and of genocide [] as also from
the principles and rules concerning the basic rights of
the human person, including protection from slavery
and racial discrimination.’
These erga omnes obligations have been defined as obligations of a
State towards the international community as a whole, in the
vindication of which all States have legal interest. They are rules which
accord a right to all States to make claims. Such rules are ‘[o]pposable
to, valid against, ‘all the world’ i.e., all other legal persons, irrespective
of consent on the part of those thus affected.’ It should be noted,
however that although all norms of jus cogens are enforceable erga
omnes not all erga omnes obligations are jus cogens.’
EAST\64724221. 3339
More than this historical legacy, however, accounts for the primacy
bestowed upon public purpose and the public purpose expression of
PSNR. The draft international covenants on human rights at minimum
contributed to the “absolute” or “pre-eminent” treatment of PSNR. Here,
too, the plain language of the text is eloquent because it provides that “[i]n
no case may a people be deprived of its own means of subsistence on the
grounds of any rights that may be claimed by other States.”940 The
proposition is clear and arresting. The unequivocal nature of the phrase
“[i]n no case” supports the proposition that even pursuant to its lawful
negotiations and treaties with other States or foreign, non-national, private
entities (i.e., foreign investors), a State may not foreclose its citizens from
control or access to the wealth and resources of a nation, as may be argued
to be the case in every instance where States contract with foreign private
entities for the exploration, exploitation, and refinement of its natural
resources.941 Read together, public purpose is understood as a fundamental
element of both the principle of self-determination and PSNR. In the latter
case, the public purpose doctrine represents a State’s “means of
subsistence” and in this sense preempts the exercise of rights by other
States or foreign private individuals. The public purpose doctrine is
depicted as one that cannot be subordinated to the greater good of the
Rafael Nieto-Navia, International Peremptory Norms (jus cogens) and International
Humanitarian Law, in MAN’S INHUMANITY TO MAN, ESSAYS IN HONOUR OF ANTONIO
CASSESE 595 et seq., at 14 (The Hague 2003) (internal citations omitted). There is no
rigid definition of jus cogens or exhaustive, definitive, and immutable list detailing every
category of jus cogens. Article 53 of the Vienna Convention on the Law, entitled
“Treaties conflicting with a peremptory norm of general international law (‘jus cogens’),”
recognizes the existence and peremptory nature of jus cogens:
A treaty is void if, at the time of its conclusion, it conflicts with a
peremptory norm of general international law. For the purposes of the
present Convention, a peremptory norm of general international law is
a norm accepted and recognized by the international community of
States as a whole as a norm from which no derogation is permitted and
which can be modified only by subsequent norm of general
international law having the same character.
VCLT, supra note 105, art. 53.
940
Draft International Covenant on Human Rights, supra note 936 (emphasis supplied).
941
Pursuant to the PSNR doctrine, exploitation and development agreements between
States and private foreign entities that vest in foreign entities the control, disposition, or
economic benefit of a State’s natural resources, may be susceptible to challenge and
characterization as an illicit privatization. Similarly, even where such rights are vested in
foreign private entities by legislative enactments, such legislation may still be vulnerable
to constitutional challenges. The legality and legitimacy is further susceptible to attack
where even narrow and restricted rights are accorded in perpetuity or for periods of time
that compromise the potential benefits of such rights that one or more generations of a
State’s citizens may claim.
EAST\64724221. 3340
community of nations (arguably a higher public purpose) because of
legacy constructions of sovereignty, territoriality, and the political
independence of States based upon 19th century economic globalization
models.942
United Nations General Assembly Resolution 1803 corroborates
PSNR’s status as a fundamental principle because of its relationship to the
right of self-determination and as a universally-held, inalienable right.943
Similarly, Resolution 1803 alludes to regulatory sovereignty and selfjudging public purpose by identifying “national interests” as the talisman
pursuant to which States are to utilize their natural wealth and
resources.944
Entitled “Permanent sovereignty over natural resources,”
Resolution 1803 is the first United Nations General Assembly Resolution
to coin the nomenclature. In addition to the standing that this historical
fact accords to the resolution, Resolution 1803 is also significant because
of its role in aiding its predecessors: Resolution 523 (adopted January 12,
1952); Resolution 626 (adopted December 21, 1952); and Resolution 1314
(adopted December 12, 1958).945 While these three predecessor
resolutions integrated economic development and commercial agreements
along with the right to exploit freely natural wealth and resources, as well
as the right to self-determination,946 they do not explicitly and concisely
adopt the nomenclature “Permanent Sovereignty over Natural Resources”
nor do they distinguish PSNR from sustainable development, or the
promotion of economic development, and economic independence with
respect to non-industrialized States. By explicitly referencing its
predecessor resolutions, Resolution 1803 imparts conceptual coherence
and uniformity to PSNR by appropriately chronicling its development.
942
See supra notes 909-912 & accompanying text.
943
Resolution 1803 specifically identifies PSNR “as a basic constituent of the right to
self-determination.” G.A. Res. 1803, supra note 914. Moreover, as to the “inalienable”
status of PSNR, the resolution States:
Any measure in this respect must be based on the recognition of the
inalienable right of all States freely to dispose of their natural wealth
and resources in accordance with their national interests, and on other
respect for the economic independence of States.
Id.
944
Id.
945
Id.
946
See supra note 939 & accompanying text.
EAST\64724221. 3341
Without abandoning the goals of economic development of
developing countries,947 reliance on the principle and the right of nations
to self-determination,948 and provision of assistance to developing
countries free of conditionality,949 Resolution 1803 underscores PSNR as a
freestanding principle. The resolution demonstrates that PNSR, while
tangentially related to the general right of States to pursue and promote
their economic development, is a distinct principle in and of itself,
providing:
Noting that the creation and strengthening of the inalienable
sovereignty of States over their natural wealth and
resources reinforces their economic independence,
Desiring, that there should be further consideration by the
United Nations of the subject of permanent sovereignty
over natural resources in the spirit of international cooperation in the field of economic development,
particularly that of the developing countries, …950
Here, PSNR’s normative standing as an absolute principle of international
law from which there can be no derogation, and in this sense conceivably
a nascent jus cogens, is notable.951 The resolution’s ostensible but
unspoken aspiration to accord jus cogens status to PSNR may be gleaned
947
In this regard, Resolution 1803 provides:
That it is desirable to promote international cooperation for the
economic development of developing countries, and that economic and
financial agreements between the developed and the developing
countries must be based on principles of equality and the right of
peoples and nations to self-determination,…
G.A. Res. 1803, supra note 899.
948
Id.
949
The resolution provides, in relevant part:
That the provision of economic and technical assistance, loans and
increased foreign investment must not be subject to conditions which
conflict with the interests of the recipient State,…
Id.
950
Id.
951
See supra note 939 & accompanying text.
EAST\64724221. 3342
from the effort to “internationalize” the principle within the framework of
economic development.952
Resolution 1803’s commitment to the development of PSNR, as a
public purpose-based principle of international law that, although forming
part of the right to self-determination, is also independent and
freestanding, and exemplified by the resolution’s own declaration. Seven
of the eight paragraphs comprising this declaration explicitly reference
and define PSNR.953 Paragraph four of the resolution’s declaration does
952
See id. Most commentators are of a single voice in recognizing that jus cogens as a
category of international law contains the following essential elements: (1) It is a norm
that is accepted and recognized by the international community of States; (2) It cannot be
derogated or otherwise altered by agreement or contract; (3) A norm of jus cogens status
may only be modified by a binding norm of equal hierarchies; (4) The norm pertains to
international law generally and, therefore, applies to all States comprising the
international community; and (5) The violation of a norm by one State affects or is of
consequence to all other States and deemed an international crime. Additionally,
enactments contrary to jus cogens are null, void, or voidable. See Fabián Novak Talavera
& Luis García-Corrochano Moyano, Derecho Internacional Público, Introducción y
Fuentes, (tomo I) Pontificia Universidad Católica del Perú, Instituto de Estudios
Internacionales, FONDO EDITORIAL 2003, at pp. 426-430, for a concise discussion of
these elements.
953
Set forth below are the paragraphs in the resolution’s declaration referencing and
defining the content, scope, and application of PSNR. Paragraph number four of the
declaration concerning the nationalization, expropriation or requisitioning, has been
omitted:
Declares that:
1. The right of peoples and nations to permanent sovereignty over their
natural wealth and resources must be exercised in the interest of their
national development and of the well-being of the State concerned.
2. The exploration, development and disposition of such resources, as
well as the import of the foreign capital required for these purposes,
should be in conformity with the rules and conditions which the
peoples and nations freely consider to be necessary or desirable with
regard to the authorization, restriction or prohibition of such activities.
3. In cases where authorization is granted, the capital imported and the
earnings on that capital shall be governed by the terms thereof, by the
national legislation in force, and by international law. The profits
derived must be shared in the proportions freely agreed upon, in each
case, between the investors and the recipient State, due care being
taken to ensure that there is no impairment, for any reason, of that
State’s sovereignty over its natural wealth and resources.
5. The free and beneficial exercise of sovereignty furthered by the
mutual respect of States based on their sovereign equality.
6. International co-operation for the economic development of
developing countries, whether in the form of public or private capital
EAST\64724221. 3343
not literally reference PSNR. However, the reasonable and arguably
necessary construction of this paragraph leaves little room for a conclusion
other than the understanding that a Host State’s taking of both foreign and
domestic property based on PSNR preempts any such ownership interest.
Within the meaning of paragraph four, PSNR constitutes a public purpose
(a “reason of public utility, security or the national interest”) sufficient to
override any foreign or domestic private interest in furtherance of a taking
pursuant to the exercise of regulatory sovereignty.954
Read together, paragraphs 2, 3, 6, 7, and 8 of the resolution’s
declaration emphasizes the primacy of PSNR over Host State obligations
in favor of Home State investors/investments.955 Paragraph 2, 3, 6, 7, and
investments, exchange of goods and services, technical assistance, or
exchange of scientific information, shall be such, as to further their
independent national development and shall be based upon respect for
their sovereignty over their natural wealth and resources.
7. Violation of the rights of peoples and nations to sovereignty over
their natural wealth and resources is contrary to the spirit and
principles of the Charter of the United Nations and hinders the
development of international co-operation and maintenance of peace.
8. Foreign investment agreements freely entered into by or between
sovereign States shall be observed in good faith; States and
international organizations shall strictly and conscientiously respect the
sovereignty of peoples and nations their natural wealth and resources
in accordance with the Charter and principles set forth in the present
resolution.
G.A. Res. 1803, supra note 914 (emphasis supplied).
954
Paragraph number four of Resolution 1803’s declaration reads:
4. Nationalization, expropriation or requisitioning shall be based on
grounds or reasons of public utility, security or the national interest
which are recognized as overriding purely individual or private
interests, both domestic and foreign. In such cases, the owner shall be
paid appropriate compensation, in accordance with the rules in force in
the State taking such measures in the exercise of its sovereignty and
accordance with international law. In any case where the question of
compensation gives rise to a controversy, the national jurisdiction of
the State taking such measures shall be exhausted. However, upon
agreement by Sovereign States and other parties concerned, settlement
of disputes should be made through arbitration or international
adjudication.
Id. (emphasis supplied).
955
See supra note 954. These paragraphs predate the 1965 Washington Convention (also
known as the ICSID Convention) by 13 years. Accordingly, it does not contain “Home
State,” “Host State,” or other “investor protection obligation” nomenclature. In this same
EAST\64724221. 3344
8 attempt to preempt tensions arising from the expectations of investment
protection held by investors from capital-exporting States and the
diminution in value or taking of such investments pursuant to the exercise
of regulatory sovereignty on the part of capital-importing States. By way
of example, paragraph two of the resolution’s declaration speaks to
harmonizing the interests of foreign capital invested in furtherance of the
exploration, exploitation, and development of host-State natural resources
with host-State exercise of regulatory sovereignty in the context of PSNR:
The exploration, development and disposition of such
resources [the natural wealth and resources of States], as
well as the import of the foreign capital required for these
purposes, should be in conformity with the rules and
conditions which the peoples and nations freely consider to
be necessary or desirable with regard to the authorization,
restriction or prohibition of such activities.956
In addition to asserting that Host States and foreign investors are to honor
agreements controlling the proportional distribution of income that foreign
investments generate, paragraph three adds that there is also a need for
“due care being taken to ensure that there is no impairment, for any
reason, of that State’s sovereignty over its natural wealth and
resources.”957 Similarly, paragraph 8 attempts to reconcile a bilateral good
faith requirement between Host States and foreign investors and the
seemingly unbridled preemptive scope of the PSNR expression of the
public purpose doctrine:
Foreign investment agreements freely entered into by or
between sovereign States shall be observed in good faith;
States and international organizations shall strictly and
conscientiously respect the sovereignty of peoples and
nations over their natural wealth and resources in
accordance with the Charter and the principles set forth in
the present resolution.958
The parameters of the principle of PSNR as set forth in Resolution 1803
are self-judging, based upon a State’s understanding of its own national
interests and scope of the exercise of its sovereignty. Moreover, the
vein, treaty-based standards and their scope and content are equally absent from the
declaration’s eight-paragraph text.
956
G.A. Res. 1803, supra note 914.
957
Id.
958
Id.
EAST\64724221. 3345
resolution enshrines PSNR as a principle of international law that because
of its grounding in an orthodox conception of the public purpose doctrine
and traditional notions of sovereignty, overrides legitimately vested
investor protection obligations on the part of Host States in favor of
foreign investors.
Thus, the resolution demonstrates a historical understanding of
public purpose pursuant to which interests grounded in the doctrine
preempt “private” microeconomic interests, both foreign and domestic.
This draconian approach to public purpose in the form of PSNR was of
considerable utility during the historical juncture where decolonization
required a strong and compelling sense of nationalism and the repatriation
of national assets, most notably control over natural resources that would
become ever more precious with the demands of the Cold War. This
historical relevance and economic utility are no longer relevant and have
become a notable impediment to foreign direct investment, and to the
relationship between developed countries and economies in transition.
globalization has called for qualifications on all expressions of public
purpose in international law.
The legacy public purpose doctrine and, therefore, the PSNR
expression of the doctrine, reflects an asymmetrical content and
application that favors Host State interests over those of Home State
capital-exporting countries.959 This understanding of public purpose
arguably threatens the very bilateralism endemic to BITs and in so doing
gives rise to frustrated expectations between foreign investors and Host
States. The international instruments demonstrating the early development
of PSNR embody this lack of symmetry or penchant favoring economies
in transition or underdeveloped countries.
United Nations General Assembly Resolution 2158 is
instructive.960 Issued only four years after its PSNR predecessor,
Resolution 1803, this resolution treats PSNR as an established principle of
public international law. Indeed, Resolution 2158 goes beyond
establishing a nomenclature and content for PSNR and speaks to
safeguarding the principle and ensuring that the developing States benefit
from its efficient and strategic application.961 This effort to safeguard the
959
See supra Chapter 4, Section B, where this phenomenon is discussed in the context of
bilateral investment treaties .
960
Resolution 2158, entitled “Permanent sovereignty over natural resources,” was passed
at the 1478th plenary meeting on November 25, 1966. G.A. Res. 2158, supra note 914.
961
Resolution 2158, in pertinent part, provides:
Considering that in order to safeguard the exercise of permanent
sovereignty over natural resources, it is essential that their exploitation
EAST\64724221. 3346
use and application of PSNR, particularly with respect to “foreign capital,”
is fundamentally predicated on supervision of foreign investment on the
part of host-State governments and the interests of underdeveloped
countries. While explicit reference is made to the need to provide
“government supervision over the activity of foreign capital to ensure that
it is used in the interests of national development,” no reference is made to
host-State obligations to protect and “to safeguard” foreign investments.962
To the contrary, paragraph four of the resolution “[c]onfirms that the
exploitation of natural resources in each country shall always be
conducted in accordance with its national laws and regulations.”963 The
application of PSNR as a paradigmatic public purpose tenet is absolutist
and asymmetrical in favor of Host States, i.e., underdeveloped countries.
The international instruments giving rise to PSNR as a principle of public
international law do not impose obligations on Host States beyond fleeting
reference to bilateral good faith in adhering to contractual obligations.964
Instead of seeking bilateralism in the relationship between
underdeveloped countries and industrialized States, Resolution 2158
actually extracts commitments from and imposes obligations on both
Home States (developed countries) and the United Nations in favor of
Host States (underdeveloped States).965 The resolution actually calls for
and marketing should be aimed at securing the highest possible rate of
growth of the developing countries,
Considering further that this aim can better be achieved if the
developing countries are in a position to undertake themselves the
exploitation and marketing of their natural resources so that they may
exercise their freedom of choice in the various fields related to the
utilisation of natural resources under the most favourable conditions,
Taking into account the fact that foreign capital whether public or
private, forthcoming at the request of the developing countries, can
play an important role inasmuch as it supplements the efforts
undertaken by them in the expectation and development of their natural
resources, provided that there is government supervision over the
activity of foreign capital to ensure that it is used in the interests of
national development, …
Id. (emphasis supplied)
962
Id.
963
Id. at ¶ 4.
964
See e.g., G.A. Res. 1803, supra note 914 (“Foreign investment agreements freely
entered into by or between sovereign States shall be observed in good faith.”).
965
In this regard, Resolution 2158 provides:
EAST\64724221. 3347
the Secretary-General to expedite the inclusion of programs addressing the
exploration and exploitation of natural resources in order to accelerate
economic development, and to provide for appropriate progress reports.966
Subsequent resolutions concerning PSNR, most notably Resolutions 2626
and 3171 emphasize the need for affirmative contributions from
3. States that such an effort should help in achieving the maximum
possible development of the natural resources of the developing
countries and in strengthening their ability to undertake this
development themselves, so that they might effectively exercise their
choice in deciding the manner in which the exploitation and marketing
of their natural resources should be carried out;
6. Considers that, when natural resources of the developing countries
are exploited by foreign investors, the latter should undertake proper
and accelerated training of national personnel at all levels and in all
fields connected with such exploitation;
7. Calls upon the developed countries to make available to the
developing countries, at their request, assistance, including capital
goods and know-how, for the exploitation and marketing of their
natural resources in order to accelerate their economic development,
and to refrain from placing on the world market non-commercial
reserves of primary commodities which may have an adverse effect on
the foreign exchange earnings of the developing countries.
G.A. Res. 2158, supra note 914, at ¶¶ 3, 6-7 (underlined emphasis supplied).
966
The resolution calls upon considerable international resources in furtherance of
economic growth pursuant to PSNR:
Requests the Secretary-General:
(a) To co-ordinate the activities of the Secretariat in the field of
natural resources with those of other United Nations organs and
programmes, including the United Nations Conference on Trade and
Development, the United Nations Development Programme, the
regional economic commissions, the United Nations Economic and
Social Office in Beirut, the specialized agencies and the International
Atomic Energy Agency, and in particular with those of the United
Nations industrial development organization;
(b) To take the necessary steps to facilitate, through the work of the
Centre for Development Planning, Projections and Policies, the United
Nations Conference on Trade and Development, the United Nations
Development Organization and the Advisory Committee on the
Application of Signs and Technology to Development, the inclusion of
the exploitation of the natural resources of the developing countries in
programmes for their accelerated economic growth;
(c) To submit to the General Assembly at its twenty-third session a
progress report on the implementation of the present resolution.
Id.
EAST\64724221. 3348
industrialized States based upon historical economic dominance or
colonization on the part of developed countries.967 Both of these
resolutions to be sure stress the need for developing countries to exercise
their best efforts in furtherance of economic development.968
Notwithstanding resolution language emphasizing that developing
countries have the primary responsibility of contributing to their own
economic development, the resolution is far from prescribing that PSNR
imposes duties on developing countries with respect to foreign investors or
Home States (industrialized countries). In fact, these foundational
resolutions continue to reference the primacy and absolute character of
PSNR. Resolution 3171, by way of example, provides:
[A]n intrinsic condition of the exercise of the sovereignty
of every State is that it be exercised fully and effectively
over all the natural resources of the State, whether found on
land or in sea,…969
As such, Resolution 3171 specifically refers to regulatory sovereignty
pertaining to economic development in the context of PSNR as an
“inviolable principle,” and adds that the full exercise by each State or
sovereignty over its natural resources is an essential condition for
achieving the objectives and targets of the Second United Nations
Developmental Decade.970 The resolution further provides that such
“exercise requires that action by States aimed at achieving a better
967
International Development Strategy for the Second United Nations Development
Decade, G.A. Res. 2626, U.N. GAOR 25th Sess., Supp. No. 30, at 39, U.N. Doc. A/8124
(1970) [hereinafter G.A. Res. 2626]; G.A. Res. 3171, supra note 914.
968
In this regard, Resolution 2626 provides:
(11) The primary responsibility for the development of developing
countries rests upon themselves, as stressed in the Charter of Algiers,
but however great their own efforts, these will not be sufficient to
enable them to achieve the desired development goals as expeditiously
as they must unless they are assisted through increased financial
resources and more favorable economic and commercial policies on the
part of developed countries.
(73) Developing countries will take specific steps to augment
production and improve productivity in order to provide goods and
services necessary for raising levels of living and improving economic
viability. While this will be primarily their own responsibility,…
G.A. Res. 2626, supra note 969 (internal citations omitted).
969
G.A. Res. 3171, supra note 914.
970
Id.
EAST\64724221. 3349
utilization and use of those resources must cover all stages, from
exploration to marketing.”971
Further, in stark contrast with the identification of obligations that
PSNR engrafts on developing States, Resolution 2626 speaks to the
obligations of industrialized States in support of the efforts of developing
countries in maximizing PSNR.972
The progressive interdependence among States delineated by both
Resolution 2626 and Resolution 3171 is framed within the immediate
post-colonization historical context. For this reason, the regulations stress
both: (i) reorganization on the part of underdeveloped States of their
natural resources; and (ii) an ever increasing gap between industrialized
and underdeveloped nations resulting from the ills of colonization and the
systemic violation of sovereignty on the part of the industrialized States
that implemented such conduct with respect to underdeveloped countries
as a matter of national policy.973
971
Id. Additionally, paragraph 1 of Resolution 3171 provides:
Strongly reaffirms all the inalienable rights of States to permanent
sovereignty over all their natural resources, on land within their
international boundaries as well as those in the C-bed and the subsoil
thereof within their national jurisdiction and in superjacent waters.
Id.
972
Resolution 2626, subparagraph 73, provides:
While this [PSNR and the development of natural wealth and
resources] will be primarily their [underdeveloped countries] own
responsibility, production policies will be carried out in a global
context designed to achieve optimum utilization of world resources,
benefitting both developed and underdeveloping countries. Further
research will be undertaken, by the international organizations
concerned, in the field of optimal international division of labor to
assist individual countries or groups of countries in their choice of
production and trading structures. Depending on the social and
economic structure and particular characteristics of individual
countries, consideration will be given to the role which the public
sector and co-operatives might play in augmenting production.
G.A. Res. 2626, supra note 969, at ¶ 73. Additionally, paragraph 76 in part provides that,
“[d]eveloped countries and international organizations will assist in the industrialization
of developing countries through appropriate means.” Id. at ¶ 76. Along this same vein,
paragraph 77 asserts that “[i]nternational financial and technical assistance will be
extended in support of their [that of developing countries] endeavor.” .Id. at ¶ 77.
973
Resolution 3171 speaks to the resolute support of “the efforts of the developing
countries and of the peoples of the territories under colonial and racial domination in
foreign occupation and their usage to regain effective control over their natural
EAST\64724221. 3350
While Global poverty and the development of natural resources in
ways that maximize the needs of all nations remains a paramount
challenge, the terms of this transnational dialogue must be recontextualized and defined anew, certainly as concerns PSNR. Economic
globalization has caused “interdependence” to give rise to public purpose
paradigms that transcend territorially based sovereignty models. The posteconomic globalization world must rely on expressions of the public
purpose doctrine, such as PSNR, premised on expectations of bilateralism
beyond absolutist precepts suggesting that without exception States’
treaty-based obligations, as well as duties arising under customary
international law, a priori and without exception, under all circumstances
must be subordinated to regulatory sovereignty in furtherance of PSNR.
Without challenging the proposition that the consequences of
colonialism have left economic scars that have not fully healed and,
therefore, command redress by affluent nations, the advent of Global and
regional markets, together with the horizontal and virtually ubiquitous
proliferation of Global centers of processing and manufacturing within the
rubric of a Global economy that is not territorially based, requires a more
comprehensive understanding of public purpose. Proportionality,
bilateralism, and an understanding of interdependence beyond one rooted
on the reparation of historical inequities must replace a legacy approach
that fosters insecurity and want of predictive value as to the very economic
relationships on which all nations depend in order to maximize the
efficient use and allocation of Global resources. PSNR needs to be
doctrinally revisited and perhaps modified as a rebuttable presumption that
also creates obligations and duties in Host States in favor of foreign
investors. In the era of economic globalization, FDI cannot be viewed as
merely a “private” matter that must be subordinated to regulatory
sovereignty under all circumstances.
C.
Seminal Decisional Law on PSNR
resources.” G.A. Res. 3171, supra note 914. Resolution 2626 in turn points to disparities
in allocation of wealth among States as the primary cause of international tensions:
(3) However, the level of living of countless millions of people in the
developing part of the world is still pitifully low. These people are
often still undernourished, uneducated, unemployed and wanting in
many other basic amenities of life. While a part of the world lives in
great comfort and even affluence, much of the larger part suffers from
abject poverty, and in fact the disparity is continuing to widen. This
lamentable situation has contributed to the aggravation of world
tensions.
G.A. Res. 2626, supra note 969, at ¶ 3.
EAST\64724221. 3351
The “decisional law”974 on PSNR is scant and not instructive.
Despite PSNR’s practical and theoretical reach and implications, this
expression of the public purpose doctrine has not surfaced as a contentious
precept forming part of the arbitral culture arising from investor-state
disputes. This paucity of “authority” in the form of awards is particularly
quizzical because of the precept’s amenability to construction as a hostState defense and also in light of the prevalence of resource-based
investor-state arbitration.975 Additionally, PSNR’s preeminence in
international instruments would suggest greater prominence in the field.
Indeed, Sornarajah has maintained that PSNR is a principle of jus
cogens.976
PSNR’s normative standing is based on three fundamental
propositions that have in turn contributed to the orthodox understanding of
public purpose in public international law. First, by treating PSNR as an
element of the principle of self-determination, the tenet is enshrined as a
974
The term “decisional law” refers to arbitral awards arising from treaty-based
arbitration.
975
As of June 30, 2013, 25% of all ICSID administered cases have pertained to “oil, gas,
and mining,” while another 12% have dealt with “electric power and other energy.”
ICSID CASELOAD-STATISTICS, Issue 2013-2, http://www.icsid.worlbank.org (last visited
August 13, 2013).
976
Specifically, Sornarajah reports in one writing that “some authorities regard as an ius
cogens principle [permanent sovereignty over natural resources].” M. SORNARAJAH, THE
INTERNATIONAL LAW ON FOREIGN INVESTMENT 193(Cambridge University Press, 3rd ed.
2010). The tribunal in El Paso Energy International Company v. The Argentine Republic
identified Professor Sornarajah as himself, adopting the position that PSNR is a principle
of jus cogens, citing to the expert report that he filed in that case. The award in relevant
part reads:
168. Professor Sornarajah finally turns to the permanent sovereignty
over natural resources, which he considers to be a principle of jus
cogens. This means that, with the fluctuations of what can be
considered as being the public interest, an element of paramount
importance in this matter, the rights granted to operators and investors
may fluctuate as well; entrants to the field cannot but be aware of that
possibility. Pursuant to the jus cogens argument, what may have been
possible at a given time under the angle of the jus cogens principle of
permanent sovereignty over natural resources will no longer be at
another point in time. In technical terms, this means that a supervening
impossibility of performance may occur under Article 61 of the Vienna
Convention on the Law of Treaties. In such situations, the
Respondent’s expert concludes, “a recovery of sovereignty is
permissible.” According to the Respondent’s expert, all BITs are
subject to that limitation.
El Paso Energy International Co. v. Argentine Republic, ICSID Case No. ARB/03/15,
Award ¶ 168 (Oct. 31, 2011), http://www.italaw.com/sites/default/files/casedocuments/ita0270.pdf [hereinafter El Paso Energy].
EAST\64724221. 3352
jus cogens. Elevated to the status of a first principle, by definition this
expression of public purpose can no longer admit discursive reasoning as a
means for justifying its doctrinal pre-eminence. Conceptually the validity
and legitimacy of first principles must be assumed and explanation or
discourse may only serve to obfuscate or derail.977 Underlying PSNR is
the principle that it serves a public purpose that is absolute, and not subject
to limitation by qualification or other conditionality. Because of its public
purpose foundation forming part of the principle of self-determination,
PSNR is not susceptible to discursive reasoning. It is in the pantheon of
the “self-evident” and “intuitive” truths.
Second, the practical workings of PSNR are inextricably
intertwined with the doctrine of sustainable development.978 Also
enshrined as a precept of universal regard and application, the doctrine of
sustainable development is deemed an unassailable and absolute principle
that also does not allow for discursive justification or consideration. The at
times inseparable references to economic development (the principle of
sustainable development) and PSNR often confusingly appear as two
aspects of a single doctrine.979 Irrespective of this proximate and at times
deceptive relationship between the doctrines, it remains uncontroverted
that they are separate and distinct, although sharing a common historical
origin founded on the process of decolonization. Further, PSNR is widely
regarded as a predicate to economic development. In turn, economic
development is viewed as a universal self-evident right shared by all
peoples that is not subject to compromise or subordination pursuant to
legal fiat. PSNR’s close relationship with the precept of sustainable
development and their common historicity contribute to the treatment of
PSNR as an absolute, intuitive and self-evident legal norm that cannot be
compromised. This absolutist configuration and elite normative status
itself is premised on public purpose, further nurturing a symbiotic
relationship between public purpose and its multiple expressions that
removes the doctrine from the realm of rational justification.
977
Jus cogens present prime examples of the intuitive and non-discursive foundation of a
first principle’s normative status. The right not to be enslaved and the proscription of
genocide are illustrative. Discourse aspiring to justify either of these tenets would not be
necessary and actually is likely to detract from the immediacy of the normative
foundation that underlies them. Bona fide first principles that are self-justifying, without
more, pre-empt other tenets that may weaken their application, and are not susceptible to
less than absolute treatment. Thus, it would be irrational, or even inconceivable, to posit a
qualification or partial application to the right to be free from slavery or the norm
proscribing genocide.
978
See supra Chapter 4, Section B, for a discussion of the role of Sustainable
Development within the public purpose doctrine.
979
See, e.g., G.A. Res. 1803, supra note 914; G.A. Res. 2158, supra note 914; G.A. Res.
2626, supra note 954.
EAST\64724221. 3353
Third, PSNR, as a right has been described in international
instruments as “inalienable.”980 The a priori configuration of a norm that
is inalienable does not admit challenge even at a theoretical level. As with
self-determination, and sustainable development, the precept’s
inalienability stems from a public purpose that is framed by the historical
conditions of decolonization. This historical grounding is important but
cannot be construed as determinative. Inalienability further entrenches a
legacy interpretation, understanding, and application of the public purpose
doctrine in all of its expressions.
Fourth and finally, because PSNR is defined through the prism of
first principles, its application is absolute and does not permit
compromise. Therefore, it is conducive to “all or nothing” determinations.
A Global paradigm of integration, however, bespeaks proportionality and
not resolutions that are absolute and detached from the community of
nations.
Ascribing a jus cogens status to PSNR because of its alleged
conceptual relationship with (i) the principle of self-determination, (ii) the
principle of economic development, and its characterization as (iii)
inalienable and (iv) absolute or non-proportional, contributes a
construction of public purpose as justifying exercise of regulatory
sovereignty without regard to any countervailing or even mitigating
proposition. For example, such elevated status could be used in connection
with a public purpose that is not linked to regulatory sovereignty but rather
to an overarching concern for furthering a public purpose rooted in the
common good of the community of nations.
PSNR exemplifies the manner in which public purpose has been
infused with a subjective content framed within a historically based policy
that is presented as beyond discursive reasoning (akin to a first principle or
jus cogens), the application of which disavows proportionality. The
practical consequence of this legacy construction is to arm regulatory
sovereignty with a doctrinal and normative foundation that does not permit
scrutiny, transparency and that in the name of a higher principle empowers
States to undermine the very rule of law under which they purport to be
organized.
While the first decades of decolonization in a pre-economic
globalization international community masked and actually rewarded
these debilities, the exigent demands of a Global economy has
underscored them without embracing a pendular shift that turns its back on
the collective responsibility to assist developing nations and economies in
transition.
980
See supra note 973 & accompanying text.
EAST\64724221. 3354
EAST\64724221. 3355
CHAP
PTER 6
The Role
R of Publlic Purpose in Foreign IInvestmentt Protection
Statutes; Can FIPS Rehabiliitate the Dooctrine?
EAST\64
4724221.3
356
Most States have enacted domestic legislation that is characterized
as intended to promote foreign investment pursuant to investor
protection.981 Much like their treaty counterparts – the network of over
3,000 BITs – the foreign investor protection statutes (“FIPS”) are not at all
the product of a centralized legislative system.982 Consequently, the FIPS
are lacking in uniformity as to (i) structure, (ii) terms, (iii) common
nomenclature, (v) substance, and even (vi) comprehensive shared
aspirations or underlying policies. This want of uniformity bespeaks a
structural debility that certainly commands concern. Fundamental
principles of comity and reciprocity may legitimately be called into
question, whereas here, disparate, and at times even contradictory policies,
are memorialized pursuant to statutory frameworks that ostensibly purport
to advance a shared objective, i.e., Host State investor/investment
protection. This absence of a coordinated effort by States at an
international level with respect to legislating FIPS also has given rise to
conflicting constructions and applications of the public purpose doctrine.
Generally, most FIPS apply public purpose normative standing in
furtherance of Host State investment protection obligations in favor of
foreign investors. Put simply, an analytical sampling of FIPS conducted
abstractly, and without reference to BITs, would suggest that Host States
primarily are concerned with exercising their regulatory sovereignty and
legislative fiat in furtherance of maximizing foreign investor protection
even to the detriment of adherence to post-investment enacted
legislation.983 The role of the public purpose doctrine in FIPS provides
981
See generally DENNIS CAMPBELL, INTERNATIONAL PROTECTION
INVESTMENT VOL. I & II (Lulu.com, pubs., 2008).
982
OF
FOREIGN
See discussion on the structural framework of BITs supra at Chapter 4.
983
The Socialist Republic of Vietnam’s Law on Investment No. 59-2005-QH11, enacted
by the National Assembly on November 29, 2005, is particularly instructive and
revealing as to this point. By way of example, under Chapter 2,(“Investment
Guarantees”), Article 11 (“Investment Guarantees in the Event of change in law or
policies”), the law provides:
1.
If a newly promulgated law or policy contains higher benefits and
incentives than those to which the investor was previously entitled, then
the investor shall be entitled to the benefits and incentives in
accordance with the new law as from the date the new law or policy
takes effect.
2.
If a newly promulgated law or policy adversely affects the lawful
benefits enjoyed by an investor prior to the date of effectiveness of such
law or policy, the investor shall be guaranteed to enjoy incentives the
same as the investment certificate or their shall be resolution by one, a
number or all of the following methods:
(a) Continuation of enjoyment of benefits and incentives;
(b) There shall be deduction of the loss from taxable income;
EAST\64724221.3
357
public international law with an existing analytical framework and
construct in which the very public purpose principles that are used to
engraft unbridled regulatory authority on a State, grants foreign investors
investment protection premised on an application of the public purpose
doctrine that preempts the public purpose justification for the exercise of
regulatory sovereignty. This use of the public purpose doctrine is unique
to FIPS. It starkly contrasts with host-State friendly constructions of the
doctrine more generally in customary and conventional international law.
Because of the proliferation of FIPS, this study traces the contours
of the public purpose doctrine in the these instruments by drawing from a
set of 17 FIPS gathered from (i) Eastern Europe,984 (ii) Southeast Asia,985
(iii) Middle East,986 (iv) Africa,987 (v) Latin America,988 (vi)
(c) There shall be a change of the operational objective of the
project;
(d) Consideration shall be given to pain, compensation in
necessary circumstances.
3.
Based on the provisions of the laws and commitments in international
treaties of which the Socialist Republic of Vietnam is a member, the
Government shall make specific provisions on guarantee for interests
investors in the case where a change in laws or policies affects
adversely the interests of the investors.
Law
on
Investment
(Nov.
29,
2005),
http://www.vietnamlaws.com/freelaws/Lw59na29Nov05CIL%5B10Apr06%5D.
pdf (translation by Phillips Fox) (emphasis supplied)
984
Law No. 7764 (“For Foreign Investments”), (February 11, 1999),
http://www.slas.info/legislazione_albanese/law%20_7764_1993_foreign_investments.ph
p (Albania) [hereinafter Albania Law No. 7764]; Law of Georgia on the Investment
Activity
Promotion
&
Guarantees
(November
12,
1999),
http://www.wipo.int/wipolex/en/details.jsp?id=10912 [hereinafter Georgia Law on
Investment]; Law of the Republic of Kazakhstan On Investments (January 8, 2003),
http://invest.gov.kz/upload/docs/en/bc1349944fb05dec7fec0578fd9b50da.pdf
[Kazakhstan Law on Investments]; Federal Law on Foreign Investment in the Russian
Federation (July 9, 1999), 39 ILM 894 (2000) [Russian Law on Foreign Investment].
985
Law of the People’s Republic of China on Foreign-capital Enterprises (October 31,
2000), http://www.china.org.cn/english/features/investment/36754.htm [China Foreigncapital Enterprise Law]; Law on Investment Promotion (July 8, 2009),
http://thailand.nlambassade.org/binaries/content/assets/postenweb/t/thailand/nederlandseambassadeinbangkok/import/producten_en_diensten/handel_en_investeren/zakendoen_in_laos/laoti
aanse-investeringswet-2009 (Lao PDR) [hereinafter Lao PDR Law on Investment
Promotion];
Law
on
Investment
(Nov.
29,
2005),
http://www.vietnamlaws.com/freelaws/Lw59na29Nov05CIL%5B10Apr06%5D.pdf
(translation by Phillips Fox) (Vietnam) [hereinafter Vietnam Law on Investment].
986
Law No. 8/2001 Regulating Direct Foreign Capital Investment in the State of Kuwait
(April 17, 2001), http://www.kuwaitemb-australia.com/files/direct_investment.pdf
[hereinafter Kuwait Direct Foreign Capital Investment Law]; The Foreign Capital
EAST\64724221. 3358
understandings between European Union & the United States,989 and (vii)
North America.990 It shall be suggested that the FIPS represent an existing
framework through which the public purpose doctrine may be further
developed and institutionalized so as to temper the ill effects of a legacy
doctrine. Although far from constituting a doctrinal solution to the
consequences of a public purpose doctrine that is self-judging and absolute
in application, FIPS may help to further the quest for application of the
doctrine in ways that comport with the exigencies of a Global era.
Viewed collectively, FIPS can be described as providing a
confluence of premises in the name of foreign investor/investment
protection. Indeed, often foreign investment protection is sought to be
furthered by FIPS that merely provide for foreign investor/investment
incentives and that offer little, if any, foreign investor protection beyond
what may already be provided for by way of BITs.991 Other FIPS provide
Investment Law for the Organization and Encouragement of Industry (October 16, 1994),
http://om.mofcom.gov.cn/table/wgtz.pdf (Oman) [hereinafter Oman Foreign Capital
Investment Law]; Law of Investment Guarantees and Incentives & its Executive
Regulations: Investment Law No. 8 (1997), www.egypt-law.com/Investments_law.pdf
(Egypt) [hereinafter Egypt Investment Law No. 8].
987
Proclamation No. 280/2002 Re-Enactment of the Investment Proclamation (July 2,
2002), http://www.wipo.int/edocs/lexdocs/laws/en/et/et013en.pdf (Ethiopia) [Ethiopia
Investment Proclamation No. 280/2002]; Act 478: Ghana Investment Promotion Centre
Act
(August
29,
1994),
http://www.intaxinfo.com/pdf/law_by_country/Ghana/Ghana%20Investment%20Promotion%20Centre%2
0Act%201994.pdf [hereinafter Ghana Investment Promotion Centre Act].
988
Foreign
Investment
Law
(March
3,
1998),
http://www.lexadin.nl/wlg/legis/nofr/oeur/arch/gua/investment_law.pdf
(Guatemala)
[hereinafter Guatemala Foreign Investment Law]; Legislative Decree No. 662 –
Approving the Juridical Stability System for Foreign Investment (September 2, 1991),
http://www.lexadin.nl/wlg/legis/nofr/oeur/arch/per/D.L.%2520662tradrev.pdf
(Peru)
[hereinafter Peru Legislative Decree No. 662]; Overview of Law for the Promotion of
Foreign Investment (Law No. 344) (May 24, 2000), http://www.PROnicaragua.org
(Nicaragua) [hereinafter Overview of Nicaragua’s Law for the Promotion of Foreign
Investment].
989
1997 European Union-United States Summit, 11 April 1997 Understanding Between
the European Union and the United States on US extraterritorial legislation (April 11,
1997); 1998 European Union-United States Summit, Understanding with Respect to
Disciplines for the Strengthening of Investment Protection (London, May 18, 1998)
[hereinafter 1998 E.U.-U.S. Understanding] .
990
U.S. DEPT. OF STATE: BUREAU OF ECONOMIC & BUSINESS AFFAIRS, 2012 Investment
Climate Statements, available at http://www.State.gov/e/eb/rls/othr/ics/2012/index.htm
(last visited Sept. 3, 2013).
991
See, e.g., Lao PDR Law on Investment Promotion, supra note 987. This legislation
provides for no less than eight (8) different zones for purposes of facilitating foreign
investment, i.e.: (i) industrial zones, (ii) export processing zones, (iii) duty-free zones,
(iv) information and technology development zones, (v) ordered trade zones, and (vi)
EAST\64724221. 3359
investor protection – guarantees – as the cornerstone investment
incentive.992 A third set of FIPS emphasize neither economic-based
urbanized trade zones. Moreover, Article 1 of the Law on Investment Promotion duly
emphasizes foreign investor incentives from a national systemic perspective:
“The Law on Investment Promotion stipulates principles, regulations
and measures regarding the promotion and management of domestic
and foreign investments aiming at ensuring investment with
convenience; speediness; accuracy; being protected by the
Government; and ensuring the rights and benefits of investors, of the
State and of the people. The law aims to enhance the roles and benefits
of investments contributed to the national socio-economic growth in a
continuous and sustainable manner; and significantly to the national
protection and development.” (Art. 1)
Id. art. 1. But for fleeting reference to “being protected by the Government,” investment
protection is only superficially mentioned in Article 61 “Forms of Investment
Protection,” and Article 62 “Protection of Intellectual Property.” Neither provision,
however, sets forth a compelling protection regime that would realistically incentivize
foreign investment. Article 61 speaks to protection of investors against “seizure,
confiscation or nationalization by administration processes,” but omits such key elements
as due process, and non-discriminatory practice as investor safeguards. Id. art. 61. The
reference to “actual value” in the article is encouraging, but of little practical
consequence when contextualized within the framework of a dispute resolution clause
(Article 78) that circumscribes the administration of justice to national institutions that
hardly can be characterized as independent of the State’s exercise of its own sovereignty.
Article 62 is but a single sentence declaration providing that intellectual property will be
protected consonant with “the Lao PDR or [disjunctive in original] international treaties
to which Lao PDR is a contracting party.” Id. art. 62. In contrast, the clear majority of the
99 articles comprising the Law on Investment Promotion concern economic or subject
matter investor incentives.
992
For example, the Albanian FIPS comprises a total of 12 articles with reference only to
investment protection and no mention of economic incentives. See Albania Law No.
7764, supra note 986. Similarly, the Georgian FIPS States that “[t]he purpose of the law
is to establish the investment-promotional regime,” and comprises sixteen articles that
emphasize investment protection or guarantee. See Georgia Law on Investment, supra
note 986. Indeed, Article 16 providing for dispute resolution—in contrast, for example,
with Article 9 of the Republic of Kazakhstan’s FIPS omitting specific arbitral
agreements—explicitly references any international arbitration body that has been set up
by UNCITRAL (Commission of the United Nations for International Trade Law) and
ICSID.
Ethiopia’s Proclamation No. 280/2002 Re-enactment of the investment proclamation, for
example, in Part Two (“Investment Objectives, Areas and Incentives”) consists of nine
numbered paragraphs and eleven subparagraphs. Despite this elaborate narrative detailing
investment objectives and incentives, special legislation and regulations concerning the
protection of foreign investors/investments are nowhere mentioned. The investment
objectives do underscore “the realization of sustainable economic and social
development” as paramount to the legislation:
PART TWO: Investment Objectives, Areas and Incentives
EAST\64724221. 3360
4. Investment Objectives of the Federal Democratic Republic of
Ethiopia
The Objectives of the investment policy of the Federal Democratic
Republic of Ethiopia are designed to improve the living standards of
the peoples of Ethiopia through the realization of sustainable economic
and social development, the particulars of which are the following:
1) to accelerate the country’s economic development;
2) to exploit and develop the immense natural resources
of the country;
3) to develop the domestic market through the growth of
production, productivity, and services;
4) to increase foreign exchange earnings by encouraging
expansion in volume and variety of the county’s
export products and services and the improvement of
their quality as well as to save foreign exchange
through production of import substituting products;
5) to encourage balanced development and integrate
economic activity among the Regions and to
strengthen the inter-sectoral linkages of the economy;
6) to enhance the role of the private sector in the
acceleration of the development of the country’s
economy;
7) to render foreign investment play its proper role in
the country’s economic development;
8) to create wide employment opportunities for
Ethiopians and to foster the transfer of technical
know-how, of managerial skills, and of technology
required for the progress of the country.
5. Areas of Investment Reserved for the Government or Joint
Investment with the Government
1) The following investment areas are exclusively reserved for
the Government:
(a) Transmission and supply of electrical energy through
the Integrated National Grid System and
(b) Postal services with the exception of courier services.
2) Investors shall be allowed to invest in the following areas
only in joint venture with the Government:
(a) Manufacturing of weapons and ammunition and
(b) Telecommunication services.
6. Areas of Investment Reserved for Domestic Investors
Areas of investment exclusively reserved for Ethiopian nationals and
other domestic investors shall be specified by regulations to be issued
by the Council of Ministers.
7. Regarding investments to be undertaken in Joint Venture with the
Government
EAST\64724221. 3361
incentives nor incentives premised on special legislative enactments
protecting or guaranteeing foreign investment. This third category of
FIPS, which is well-exemplified by the People’s Republic of China’s
FIPS, highlights the importance of host-State development and investor
obligation to adhere to domestic law.993
The Supervising Authority of Public Enterprises shall receive
investment proposals submitted by any private investor intending to
invest in joint venture with the government; it shall submit same to the
Ministry of Trade and Industry for decision and, upon approval,
designate a public enterprise to invest as partner in the joint investment.
8. Areas of Investment Open for Foreign Investors
All areas of investment, other than those exclusively reserved, under
this Proclamation, for the Government or joint venture with the
Government or for Ethiopian nationals or other domestic investors,
which shall be specified by regulations to be issued by the Council of
Ministers, shall be open for foreign investors.
9. Investment Incentives
1) Areas of investment specified by regulations to be issued by
the Council of Ministers pursuant to the investment objectives
Stated under Article 4 of this Proclamation shall be eligible for
investment incentives.
2) The regulations to be issued pursuant to Sub Article (1) of this
Article shall determine the type and extent of entitlement to
incentives.
Ethiopia Investment Proclamation No. 280/2002, supra note 989, Part Two.
993
The very first article (Art. 1) of the Law of the People’s Republic of China on
Foreign-Capital Enterprises (Order of the President of the People’s Republic of China
No. 41) is instructive as to this point. Quite notably, the article fundamentally speaks to
Host State development and the national economy:
With a view to expanding economic cooperation and technological
exchange with foreign countries and promoting the development of
China’s national economy, the People’s Republic of China permits
foreign enterprises, other foreign economic organizations and
individuals (hereinafter collectively referred to as “foreign investors”)
to set up enterprises with foreign capital in China and protects the
lawful rights and interests of such enterprises.
China Foreign-capital Enterprise Law, supra note 987, art. 1. Most of the 24 articles
comprising the People’s Republic of China’s FIPS are bereft of economic or protection
incentives regarding foreign investments. The China FIPS mostly sets forth the foreign
investment application format, and the obligation of investors to abide by the laws and
regulations of the People’s Republic of China.
For completeness’s sake it should be observed that the sum total of foreign investment
protection strictures within the China FIPS is contained in a single sentence in Article 4
providing that: “[t]he investments of a foreign investor in China, the profits it earns and
EAST\64724221. 3362
Viewed holistically, the FIPS represent a confluence of economic
incentives, investment protection or guarantees, incentives, investor
obligations, privileges, and rights, and dispute resolution recourse. The
public purpose doctrine pervades the FIPS framework. Often, as discussed
below, in ways that are contradictory even within the anatomy of a single
FIPS.
A.
The Public Purpose of FIPS Investor Protection
FIPS that are committed to investor protection as a fundamental
tenet applied to incentivize FDI attempt to legislate against the exercise of
regulatory sovereignty. Where such regulatory activity infringes on
investor protection obligations implicitly, if not altogether explicitly, such
FIPS point to a different and higher form of public purpose, one that
accounts for the aligned interests of both home and Host States. The
Socialist Republic of Vietnam’s FIPS, by way of example, provides that
“lawful assets and invested capital of investors shall not be nationalized or
confiscated by administrative measures.”994 This succinct and unqualified
Statement is presented as a self-standing proposition. It is tempered only
by a subsequent paragraph that itself merits analysis because of its own
limitations in restricting the blanket protection against nationalization or
confiscation pursuant to legacy regulatory sovereignty. Absolute foreign
investor protection against nationalization or confiscation is only
subordinated to national defense and security:
2. In case of real necessity for purpose of national defence
and security and in the national interest, if the State
requires compulsory or requisitions an asset of an investor,
such investor shall be compensated or paid damages at the
market price at the time of announcement of such
compulsory acquisition or requisition.995
In addition to limiting any exception to absolute protection accorded to
investors from regulatory sovereignty to concerns pertaining to “national
defen[s]e and security,” the need identified must be a “real necessity.”
Moreover, the use of the conjunctive “and” stresses that a genuine national
defense or security need must be present, thus materially narrowing
application of the exception. Use of the “market price” compensation
standard, as opposed to the common “adequate” or “fair” metric, comports
its other lawful rights and interests are protect by Chinese law.” Id. art 4. This general
and scant recitation cannot be construed as aspiring to incentivize foreign investors,
without more.
994
Vietnam Law on Investment, supra note 987, art. 6 ¶ 1.
995
Id. art. 6 ¶ 2 (emphasis supplied).
EAST\64724221. 3363
with a protection regime that purports to grant to foreign investors
virtually absolute protection. Linking market prices to “the time of
announcement of such compulsory acquisition or requisition” conduct
provides still an additional layer of investor protection at the compensation
phase because most non-FIPS, i.e., BITs, or regional trade agreements
favor Host States by measuring damages as of the date of the actual taking
and not the earlier time frame fixed by public notice of a prospective
confiscation.996
Egypt’s FIPS is similarly categorical in its commitment to foreign
investor protection.997 The provisions under part two of the Egyptian FIPS
entitled “Investment Guarantees” specifically addresses four areas where
the exercise of regulatory sovereignty premised on public purpose
historically has raised risks for FDI: (i) nationalization or confiscation, (ii)
encumbrance of assets, (iii) administrative intervention in pricing and
profits, (iv) regulatory authority governing licensing and land use. The
first of these safeguards on its face provides an absolute commitment to
protect foreign investment from nationalization or confiscation. In a crisp
and concise sentence, the FIPS provides that “[c]ompanies and
establishments may not be nationalized or confiscated.”998 Unlike the
Vietnam FIPS, nowhere does the Egyptian FIPS qualify this Statement,
even with respect to national defense and security, or national interest. The
investor protection obligation is without exception and in this sense
absolute. The absence of an indirect nationalization or expropriation, or
actions tantamount to nationalizations or expropriations in the context of
this FIPS is not at all disconcerting because the omission is mitigated by
subsequent articles in Part Two.
996
For example, Art. 1110 of the NAFTA (“Expropriation & Compensation”) provides,
in relevant part:
2. Compensation shall be equivalent to the fair market value of the
expropriated investment immediately before the expropriation took
place (“date of expropriation”), and shall not reflect any change in
value occurring because the intended expropriation had become known
earlier. Valuation criteria shall include going concern value, asset value
including declared tax value of tangible property, and other criteria, as
appropriate, to determine fair market value.
3. Compensation shall be paid without delay and be fully realizable.
North American Free Trade Agreement art. 1110 ¶¶ 2-3, US-Can-Mex., Dec. 17, 1992,
32 I.L.M.639 (1993).
997
See Egypt Investment Law No. 8, supra note 988 .
998
Id. at art. 8.
EAST\64724221. 3364
Investor protection risk attendant to asset encumbrance also is
forcefully presented. The single sentence article States that “[c]ompanies
and establishments may neither be sequestered nor may their assets be
subject to administrative attachment, seized, restrained, frozen, or
expropriated.”999 Article 9 contains the first reference to the term
“administrative” in any form. While its presence opens the door to the
possibility of lawful judicial attachment, seizure, restraining orders,
freezes on assets, or expropriations, it is the exercise of regulatory
sovereignty through administrative agencies that historically has
challenged foreign investment protection. Also, the absence of any
qualifying language in this context is investor and Home State friendly.
Even though the term “assets” is not defined in the FIPS, the use of this
generic term would suggest that tangible and intangible property is
covered.1000
The limitations on administrative authority with respect to
intervening in prices and profits also is unqualified. The investment
guarantees on this issue State that “[n]o administrative authority may
intervene in pricing the products of companies and establishments
knowingly determining their profits”1001 The provision of subsidies to
domestic companies in competition with foreign investors in a particular
999
Id. at art. 9.
1000
Most FIPS contain a section defining terms deemed material. In this regard the
Egyptian FIPS is an exception. For example, Article 3 of the Law of Georgia on the
Investment Activity Promotion & Guarantees defines “assets” as:
a)
any contribution to the capital of an object established with the
foreign investments;
b) any profit and dividend as well as the assets remaining after the
whole or partial sale of the foreign investment;
c) levies associated with contractual (including debt) liabilities;
d) the right to use property tax to be preliminarily fixed as the income
interest gained by using other person’s property, including natural
resources, copyright, patents (royalty) as well as payment of
administrative and other charges.
Georgia Law on Investment, supra note 986, art. 3. See also Russian Law on Foreign
Investment, supra note 986, art. 2 (“Basic Terminology Used in This Federal Law”);
Albania Law No. 7764, supra note 986, art .1 (“General Provisions”); Lao PDR Law on
Investment Promotion, supra note 987, art. 3; Vietnam Law on Investment, supra note
987, art. 3; Ethiopia Investment Proclamation No. 280/2002, supra note 989, art. 2
(“Definitions”); Guatemala Foreign Investment Law, supra note 990, art. 1; 1998 E.U.U.S. Understanding, supra note 991, ¶ d (“Definitions”).
1001
Egypt Investment Law No. 8, supra note 988, art. 10.
EAST\64724221. 3365
sector has spawned considerable treaty-based arbitral disputes.1002 Indirect
takings, actions tantamount to the taking, or administrative equivalent to
the taking often present themselves in the form of competitive advantages
that a Host State provides to key domestic players who in turn underprice
foreign competitors. Frequently such administrative gyrations are
implemented post-entry and after foreign investor know-how has been
acquired by key host-State technocrats. Accordingly, a provision of this ilk
may in fact serve as a material incentive to foreign investors.
The fourth pillar of the Egyptian investment guarantees goes far in
allaying investor fears of an indirect taking or of exercise of regulatory
sovereignty tantamount or equivalent to a taking pertaining to licensing
and environmental concerns. This provision reserves termination or
cancellation of a license to the Prime Minister and only upon referral by a
competent administrative authority:
No Administrative Authority may cancel or suspend, in
whole or in part a license for usufruct of real eState, which
the company or establishment is licensed to utilize, except
in case of breach of the conditions of the license.
A decree terminating or canceling a license shall be issued
by the Prime Minister upon a proposal of the
Administrative Authority. The involved party may
challenge such decree before the Administrative Courts
within thirty (30) days from the date of notification or
acknowledgment thereof.1003
Relegating licensing and environmental matters that touch or concern
foreign investors to the Prime Minister with recourse to challenge such a
decree to administrative courts underscores the severity of host-State
commitment to legal obligations favoring foreign investors. This unique
and somewhat extraordinary provision may well serve as a paradigm for
tempering regulatory sovereignty in favor of Host States on an unqualified
basis founded on application of the legacy public purpose doctrine.
Unlike the Vietnamese and the Egyptian FIPS, the FIPS enacted by
the Lao People’s Democratic Republic is representative of a weaker but
more conventional protection standard that bears a closer resemblance to
1002
See, e.g. United Parcel Service of America Inc. v. Government of Canada,
UNCITRAL, Award on the Merits, 24 May 2007,
http://italaw.com/sites/default/files/case-documents/ita0885.pdf.
1003
Egypt Investment Law No. 8, supra note 988, art. 11.
EAST\64724221. 3366
the takings regimes contained in most BITs.1004 The Lao’s provisions on
investment protection read:
The Government fully acknowledges and protects the
investment of investors against seizure, confiscation or
nationalization by administration processes.
In the case that the Government has the need for public
interests; the investors shall be compensated with an actual
value based on market price at the time of transferring
money and the payment method is agreed by both parties.
The Government acknowledges and protects the intellectual
property of registered investors in accordance with the Law
on Intellectual Property in the Lao PDR or international
treaties to which Lao PDR is a contracting party.1005
The Lao foreign investment protection strictures contained in its FIPS is
not indicative of a protection standard greater than that which is contained
in most FIPS, and, arguably, perhaps even less so.1006 Despite mention of
1004
Compare Lao PDR Law on Investment Promotion, supra note 987, art. 61 (“Forms of
Investment Protection”) with Agreement Between Japan and the Laos People’s
Democratic Republic for the Liberalisation, Promotion and Protection of Investment art.
11
(“Expropriation
and
Compensation”),
Jap.-Laos,
Jan.
16,
2008,
http://www.unctad.org/sections/dite/iia/docs/bits/Japan_Laos.pdf. The Japan-Lao PDR
BIT tracks the traditional customary international law requirements for an expropriation:
1. Neither Contracting Party shall expropriate or nationalise
investments in its Area of investors of the other Contracting Party or
take any measure equivalent to expropriation or nationalisation
(hereinafter referred to as “expropriation”) except: (a) for a public
purpose; (b) in a non-discriminatory manner; (c) upon payment of
prompt, adequate and effective compensation pursuant to paragraphs
2, 3 and 4; and (d) in accordance with due process of law and Article
5.
Id. art. 11 (emphasis supplied); see also U.S. CONST. amend. V (“[N]or shall private
property be taken for public use, without just compensation.”).
1005
Lao PDR Law on Investment Promotion, supra note 987, art. 61 & art. 62. (emphasis
supplied).
1006
The great majority of BITs proscribe expropriations or nationalizations direct or
indirect, or acts tantamount to a direct or indirect nationalization or expropriation, but for
instances where the confiscation takes place (i) in accordance with due process (ii) in a
non-discriminatory manner, (iii) in furtherance of a public purpose, and (iv) where
compensation issued. Three of these four predicates for a legal taking are missing from
the Lao PDR Article 61 investment protection rubric.
EAST\64724221. 3367
“an actual value based on market price”1007 that at first review appears to
favor foreign investment protection, the vesting period for calculating
compensatory damages is placed as of “the time of transferring money.”
The late damage calculation trigger point militates in favor of host-State
interests. Here too, recourse to a legacy public purpose normative
foundation for exercise and legal justification of the exercise of regulatory
sovereignty to the detriment of purportedly binding investor protection
obligations introduces the panoply of concerns endemic to application of a
subjective non-proportionality based doctrine devoid of substantive
content and commensurable standard.
The Kuwait FIPS is structured so as to proscribe in a succinct and
compelling Statement confiscation or nationalization of licenses provided
to foreign investors.1008 The stricture plainly provides that: “[f]oreign
enterprises licensed under the provision of this law may not be confiscated
or nationalized.”1009
Despite the seemingly unqualified nature of the pronouncement, the
ostensibly absolute protection tenet is actually subject to a legacy public
purpose limitation. The second paragraph wrests away what the first
paragraph granted:
Expropriation may only be made for public interest in
accordance with the laws applicable and against a
compensation equivalent to the enterprise’s real economic
value at the time of the expropriation. Such value shall be
assessed according to the economic situation prior to any
threat of expropriation. Further the due compensation shall
be paid without delay.1010
Notwithstanding the vulnerabilities presented by an orthodox public
purpose analysis in supplying a normative foundation for an expropriation,
prospective victimized investors are provided with the most liberal and
rewarding compensation calculus because the timeframe for computing
compensatory damages commences “prior to any threat of
expropriation”1011 As with the Vietnamese FIPS, this trigger date for
1007
Id.
1008
See Kuwait Direct Foreign Capital Investment Law, supra note 988, art. 8 (“Secured
Guarantees for Foreign Investments”).
1009
Id.
1010
Id.
1011
Id.
EAST\64724221. 3368
computing compensation is more favorable to investors than the rubric
contained in most BITs.1012
The Vietnam and Egypt FIPS are representative of a public
purpose that overrides the normative command of the doctrine in its
legacy form when underlying regulatory sovereignty. It, therefore, is
indicative of a broader public purpose capable of subordinating orthodox
regulatory sovereignty in pursuit of a common but national goal to a
higher and more encompassing obligation that is specific in nature, narrow
as to subject matter, objective in application, and more consonant with an
environment of globalization. In addition, overriding exercise of
regulatory sovereignty in furtherance of incentivizing FDI has the
additional benefit of redounding in advancing the best interests of the very
principles that regulatory sovereignty aspires to promote through the
obligation of the legacy public purpose doctrine. The existence of a legal
structure in place in Host States to protect and support foreign investors is
most helpful to the extent to which the international community may
extract and extrapolate general principles of international law from FIPS,
particularly those principles that may contribute to enriching the public
purpose doctrine.
Mere enactment of FIPS even where properly drafted and as part
of coordinated uniform effort on the part of the international community,
however, would only represent a very embryonic and partial solution. The
United States Department of State has identified three shortcomings that
would vitiate the effects of even model legislation. At the outset, FIPS,
may be enacted but are not always enforced in practice.1013 Corruption
also plays a material negative role in the application of investor protection
1012
The Japan-Peru BIT is representative of the traditional standard for measuring the
date at which compensation for an expropriation attaches:
The compensation shall be equivalent to the fair market value of the
expropriated investments at the time when the expropriation was
publicly announced or when the expropriation occurred, whichever is
earlier. The fair market value shall not reflect any change in value
occurring because the expropriation had become publicly known
earlier.
Agreement Between Japan and the Republic of Peru for the Promotion, Protection and
Liberalisation of Investment art. 13 ¶ 2, Per.-Jap., Nov. 22, 2008, available at
http://unctad.org/sections/dite/iia/docs/bits/japan_peru.pdf.
1013
See U.S. DEPT. OF STATE: BUREAU OF ECONOMIC & BUSINESS AFFAIRS, 2012
Investment Climate Statement: Russia, available at
http://www.State.gov/e/eb/rls/othr/ics/2012/191223.htm (last visited Sept. 3, 2013) (“A
legal structure is in place to support foreign investors, although the laws are not always
enforced in practice.”) [hereinafter Russia Investment Climate Statement].
EAST\64724221. 3369
obligations.1014 Moreover, in the case of former Soviet bloc countries,
confiscations effectuated during the communist regime have created
insurmountable title problems that may redound to the detriment of
foreign investor protection.1015 A fourth limitation on the efficacy of FIPS
(as shall be discussed in greater detail in the next subsection) are carve-out
provisions that limit foreign investor ownership in specifically designated
properties and industry sectors. Fifth, in addition to these considerations,
as of the date of this writing the treaty-based arbitration decisional law
does not suggest that FIPS have played any meaningful role in the
doctrinal or conceptual adjudication of disputes. In this same vein, on the
question of investor protection or of the role of public purpose in
harmonizing principles of investor protection with the exercise of
regulatory sovereignty, FIPS have generated scant if any authority.1016
Corruption, carve-outs, non-enforcement, and less than even a perfunctory
presence in the decisional law of treaty-based international arbitration may
indeed explain the limited role that FIPS have played in the doctrinal
development of customary international law as to the relationship between
investor protection and regulatory sovereignty, let alone in the
development of the public purpose doctrine. Indeed, with respect to nonenforcement, corruption and carve-outs, the U.S. Department of State’s
observations on Russia’s FIPS are helpful:
The 1991 Investment Code guarantees that foreign
investors will enjoy rights equal to those of Russian
investors, although some industries have limits on foreign
ownership…. The 1999 Law on Foreign Investment
[citation omitted] (emphasis in original) also affirms this
principle of equal treatment. Unfortunately, corruption
plays a sizable role in the Judicial System…. Moreover,
Russia has sought to enhance consultation mechanisms
with international businesses, including through the
Foreign Investment Advisory Council, regarding the impact
of the country’s legislation, regulations, and dispute
mechanisms on the business and investment climate. Still,
1014
U.S. DEPT. OF STATE: BUREAU OF ECONOMIC & BUSINESS AFFAIRS, 2012 Investment
Climate
Statement:
Albania,
available
at
http://www.State.gov/e/eb/rls/othr/ics/2012/191094.htm (last visited Sept. 3, 2013)
(“Despite progress in these reforms, major challenges remain with investors citing
widespread corruption, weak law enforcement, insufficiently defined property rights,
government bureaucracy, lack of developed infrastructure, and frequent changes in the
legal framework.”) [hereinafter Albania Investment Climate Statement].
1015
See Russia Investment Climate Statement, supra note 1015 & Albania Investment
Climate Statement, supra note 1016.
1016
In fact, as of the date of this writing, it appears that no decisional law regarding FIPS
has been generated in the investor-State dispute context.
EAST\64724221. 3370
the country’s investment dispute mechanisms remain a
work in progress and at present can result in a nontransparent, unpredictable process.
The 1991 Investment Code prohibits the nationalization of
foreign investments, except following legislative action and
where deemed to be in the national interest. Such
nationalizations may be appealed to the courts of the
Russian Federation, and the investor must be adequately
compensated. At the sub-federal level, expropriation has
occasionally been a problem, as has local government
interference and a lack of enforcement of court rulings
protecting investors.1017
In connection with title encumbrances, the State Department’s recent
analysis with respect to Albania’s FIPS is equally availing:
The Albanian Constitution guarantees the right of private
property. According to Article 41 of the Albanian
Constitution, expropriation or limitation in the exercise of a
property right can be done only in the public interest. And
with fair compensation. In the post-communist period,
expropriation has been limited to land needed for projects
in the public interest, mainly infrastructure projects,
including, but not limited to roads, energy infrastructure,
waterworks, airports, etc. However, compensation has
generally been below market value and some owners have
complained publicly about the compensation process being
slow and unfair.
There are many ongoing disputes per properties confiscated
during the communist regime. The restitution compensation
process started in 1993 had been slow and marred by
corruption. The process still ongoing and many U.S.
citizens of Albanian origin have long-running disputes with
the government regarding restitution of property.1018
B.
FIPS Carve-outs and Public Purpose
The anatomy of FIPS is rife with “carve-out” provisions where
public purpose generally serves as an organizing principle or qualifying
1017
Russia Investment Climate Statement, supra note 1015 (emphasis supplied).
1018
Albania Investment Climate Statement, supra note 1016 (emphasis supplied).
EAST\64724221. 3371
doctrine.1019 These provisions suffer from the ills that orthodox public
purpose workings generally engraft on rights and limitations, but are
generally helpful because they introduce transparency to the FIPS
framework and thus shape and allay Home State/investor expectations.
These carve-outs typically concern (i) investor rights and guarantees,1020
(ii) investor obligations,1021 (iii) industry sectors where foreign investment
is proscribed,1022 and (iv) formulas for the compensation of takings of
foreign investments.1023
1019
See, e.g., Albania Law No. 7764, supra note 986, art.4, art. 10; Kazakhstan Law on
Investments, supra note 986, art. 4 ¶ 3(2); Russian Law on Foreign Investment, supra
note 986, art. 4 ¶ 2; China Foreign-capital Enterprise Law, supra note 987, art. 4, art. 5;
Lao PDR Law on Investment Promotion, supra note 987, art. 4; Kuwait Direct Foreign
Capital Investment Law, supra note 988, art. 8 ; Oman Foreign Capital Investment Law,
supra note 988, art. 12; Ethiopia Investment Proclamation No. 280/2002, supra note 989,
art. 21.
1020
See, e.g., Kazakhstan Law on Investments, supra note 986, art. 4 ¶ 3(2) (“These
guarantees shall not cover…amendments introduced to legislative acts of the Republic of
Kazakhstan to ensure national and ecological security, public health and morality.”); Lao
PDR Law on Investment Promotion, supra note 987, art. 4 (“The Government promotes
the investment in all sectors and business and all areas throughout the country, except
areas and business operations which are related to national security; seriously harmful to
environment either in short run or long term; negative effects to public health; and the
national culture.”)
1021
See, e.g., China Foreign-capital Enterprise Law, supra note 987, art. 4 (“Enterprises
with foreign capital shall abide by Chinese laws and regulations and may not engage in
any activities detrimental to China’s public interests.”) (emphasis supplied).
1022
For example, Article 14 of the Ghana Investment Promotion Centre Act provides that
“[t]he enterprises specified in the Schedule are reserved for citizens and shall not be
undertaken by a person who is not a citizen.” Ghana Investment Promotion Centre Act,
supra note 989, art. 14. The Schedule to the Act specifies the following:
Enterprises Wholly Reserved for Citizens
1.
2.
3.
4.
The sale of anything whatsoever in a market, petty trading,
hawking or selling from a kiosk.
Operation of taxi service and car hire service. (A nonGhanaian may undertake this service where there is a
minimum fleet of ten new vehicles.)
All aspects of pool betting business and lotteries, except
football pools.
Operation of beauty salons and barber shops.
Id. Schedule [Section 18].
1023
See, e.g., Albania Law No. 7764, supra note 986, art.4 (“Foreign investments will not
be expropriated or nationalized directly or indirectly, they will not be the subject of any
measure equal to these measures, except in special cases, in the interest of the public use,
defined by law, without any discrimination, with immediate, appropriate and effective
compensation, in accordance with legal procedures.”) (emphasis supplied).
EAST\64724221. 3372
In some instances, the cumulative effect of the carve-outs provide
prospective investors with some insight into the regulatory sphere of the
target Host State.1024 The Georgia FIPS is rich in carve-out provisions,
specifically addressing rights of investors, duties of investors,
qualifications attendant to investment activity, and investment
inviolability. Among the more practical investor rights is the guarantee to
engage in business and in the conduct of the investment while having the
rights and guarantees enjoyed by Georgian citizens. Investors also are
granted the right to full bank accounts, secure loans, and purchase stocks.
Upon satisfying domestic fiscal obligations, such as taxes, as a matter of
right investors are vested with “unlimited” transfer rights. Along these
same lines, investors enjoy the right to export property.1025
1024
As may be expected, the connection between the quantity of carve-outs, the quality of
the carve-outs, and the extent to which both of these first two factors yield transparency is
particular to each FIPS.
1025
For example, the Law of Georgia on the Investment Activity Promotion and
Guarantees, Article 3 (“Rights of Investors”), provides:
1.
2.
3.
4.
5.
In conducting the investment and entrepreneurial activity a foreign investor’s
right s and guarantees shall not be less than when the rights and guarantees
enjoyed by Georgian natural and legal person.
An investor shall be entitled to open current and other accounts in any currency
with banking institutions located on the territory of Georgia.
An investor shall be entitled to take loans in banking and financial institutions
located in Georgia or from natural or legal persons.
An investor shall be entitled to acquire stocks, bonds, and other securities and
property both in Georgia and abroad.
A foreign investor shall, upon payment of taxes and necessary levies, have the
right to convert the profit (income) gained from investments at the market rate
of exchange of Georgian banking institutions and in the right of unlimited
repatriation abroad.
Such assets may be:
a) any contribution to the capital of an object established with the foreign
investments;
b) any profit and dividend as well as the assets remaining after the whole or
partial sale of the foreign investment;
c) levies associated with contractual (including debt) liabilities;
d) the right to use property tax to be preliminarily fixed as the income interest
gained by using other person’s property, including natural resources,
copyrights, patents (royalty) as well as payment of administrative and other
charges.
6.
7.
A foreign investor shall be entitled to export the property being in his
possession.
The right as per paragraph five of this Article may be subject to restriction under
law by court’s decision in connection with bankruptcy, committing an offense,
or non-performance of a civil obligation.
Georgia Law on Investment, supra note 986, art. 3.
EAST\64724221. 3373
The Article prescribing investor rights does not at all place such
rights in jeopardy based upon potential application of an overriding State
interest in the form of the public purpose doctrine. Structurally, the
Georgian FIPS artfully expresses the scope and depth of regulatory
sovereignty premised on public purpose in a carefully crafted sentence that
certainly hides much more than it may ever wish to reveal. Immediately
following the narrative of investor rights, investor duties are collapsed into
a formally simple twenty-five word sentence that reads:
An investor shall be liable to conduct activities in
accordance with the effective Georgian legislation as well
as legislation concerning the environment and health
protection.1026
Close analysis of this seemingly simple provision would suggest that
regulation allegedly premised on environmental and health concerns may
preempt host-State foreign investment protection obligations.1027
In a formal and perhaps even substantive effort to enhance
transparency and legitimacy, proscribed investments in specific industry
sectors are made subject to approval where presented by the President of
Georgia to the Parliament.1028 Moreover, special industry sectors regulated
by permit or license issued by regulatory agencies are identified with
specificity. These industry sectors, ranging from the manufacture and sale
of weapons and explosives to issuance of securities for public circulation,
manifestly touch or concern strategic industries that in turn may affect the
general population.1029 In addition to rational corollaries arising from these
1026
Id. art.4. (emphasis supplied).
1027
Notably, however, the Georgian FIPS does not specifically address the soundness of
financial institutions as a public purpose consideration that may override investor
protection obligations. The term “health protection” contained in Article 4, however, is
sufficiently vague as to encompass perceived risks to the health and soundness of
Georgian financial institutions.
1028
Id. art 9.
1029
Article 9 (“Prohibition and Restriction in the Sphere of Investment Activity”) reads:
1. A list of branches where the investment realization is prohibited shall
be subject to approval of Parliament of Georgia on presentation by
President of Georgia.
2. An investor shall not be entitled without a permit or license issued by
an appropriate agency to engage in the following activity:
a) manufacture and sale of weapons and explosives;
EAST\64724221. 3374
strictures, the expectation of legacy public purpose regulatory sovereignty
to be sure looms large while Art. 9 in itself certainly represents a
meaningful carve-out that serves notice and transparency policies as to
foreign direct investment, the provision itself is devoid of reference to
legislative enactments or other authority earmarked to protect foreign
investment, or otherwise fashioned so as to incentivize foreign investors
on the ground of investment guarantee and security.
These shortcomings notwithstanding, it is worth emphasizing that
the Georgian FIPS is emblematic of legislation that mitigates the hardships
of regulatory sovereignty premised on public purpose to the detriment of
host-State investor protection obligations. Two salient strictures
illustrating the underlying policy favoring investor protection in ways that
mitigate technical application of regulatory sovereignty with respect to
issues so material as to constitute conditions precedent to triggering the
rubric of home-State investor protection obligations such as (i) juridical
structure or form of ownership and (ii) citizenship status, command
particular attention. Pursuant to Chapter 1, Art. 2., Investment Activity
Subject (Investor) and Object, “[a] foreign investor shall be deemed to
be… [a] Georgian citizen permanently residing abroad.” This seemingly
innocuous provision is illustrative, at minimum, of a political willingness
to shed technical jurisdictional defenses that Host States generally raise
when challenging treaty-based claims asserted by a foreign citizen
alleging to be a “foreign investor.” Casting an expansive net so as to
include a Georgian citizen permanently residing beyond the national
territory of Georgia as a “foreign investor” under any analysis represents a
broad and liberal manifestation of a policy favoring foreign
investors/investments. Even more meaningful, is the adoption of a
methodology for statutory construction of the actual FIPS that place
substance over form. This overarching principle is a commendable
contribution to the drafting of FIPS.
Along the very same lines of the broad definition of “foreign
investor,” the Georgian FIPS protects foreign investors against exercise of
b) preparation and sale of medicines and substances that are
subject to special control;
c) use of forest resources and entrails;
d) setting up of casinos and other gambling houses which
provide for arranging games and lotteries;
e) banking activity;
f) insurance activity;
g) issue of securities for public circulation;
h) wireless communication service and TV and radio
channels’ creation;
i) other activities defined by the effective Georgian legislation.
Id.
EAST\64724221. 3375
regulatory sovereignty based on a nearly formal definition of ownership in
an investment within the territory of Georgia by adopting an all-inclusive
understanding of the term limited only by Art. 9 and 12 of the FIPS.1030
The Georgian FIPS also emphasizes substance over form on the gateway
issue of ownership:
Investments on the territory of Georgia may be realized in
an object with any form of ownership which investment is
not prohibited as per paragraph one of Article 9 of this law.
Investments in the objects listed in Articles 9 and 12 of this
law may be realized only on the basis of an appropriate
special permit or license.1031
The identification of agency-regulated licensing and permitting in the
context of foreign investment coupled with identified restrictions provide
both home and Host States with a base premise from which both may
draw in formulating specific investor protection obligations and
expectations. While the “duties of investors’ set forth in Art. 4 of the
Georgian FIPS is somewhat disappointing, they still represent a
meaningful step in the right direction when appropriately contextualized.
Structurally similar to the Georgian FIPS, the Lao FIPS dedicates
the entirety of Part V (Rights and Obligations of Investors) of its FIPS,
comprising eight articles, to setting forth affirmative investor rights.1032
1030
As to Article 9, see supra notes 1031-32 & accompanying text. Article 12
(“Acquisition of Property Right to Land and Other Natural Resources”) States:
Acquisition of the Property Right to Land and Other Natural Resources
as well as the right to develop natural resources shall be regulated
under laws of Georgia ‘On Property of Agricultural Land,’ ‘On Lease
of Agricultural Land,’ ‘On the Procedure for Granting Concessions to
Foreign Countries and Companies,’ ‘On Entrails ‘ and other legislative
acts.
Id. art. 12.
1031
Id. art. 2.
1032
Part V of the Lao PDR Law on Investment Promotion vests foreign investors with the
fundamental rights necessary to conduct business, providing:
Article 63: (Rights of Investors)
Investors have the following basic rights:
1. Right to invest;
2. Rights to govern and manage business operations;
3. Rights to hire labor forces;
4. Rights to reside in the Lao PDR in case of foreign investors;
5. Rights to transfer capitals, assets, and incomes from Lao PDR
to abroad in case of foreign investors.
EAST\64724221. 3376
Two qualifications, however, are necessary for purposes of
contextualizing the narrative of purported rights. First, Part V does not
appear or purport to provide investors with rights greater than or different
from those accorded to domestic investors. Nowhere in Part V does the
carve-out enumerating investor rights contain premises specially tailored
to meet concerns particular to foreign investors. While the Lao FIPS does
assert that foreign investors shall be treated no differently from domestic
Article 64 (Right to Invest)
Rights to invest are defined as follows:
1. To invest in all business sectors and zones which are not
prohibited to invest under the laws of the Lao PDR;
2. To invest according to the types and forms of enterprises in
accordance with laws and regulations;
3. To apply for project concession from the Government or local
authorities on the case-by-case basis to develop a project;
4. To apply for a concession to establish a Special Economic
Zone and Specific Economic Zone from the Government;
5. To establish a representative office or a branch in Lao PDR;
6. To apply for the changing of the investment objectives or
activities in the case that the business operations are not
effec